Business

Bank of England rises, says UK may already be in recession


The Bank of England raised interest rates by 0.5 percentage points on Thursday.

Vuk Valcic | SOPA images | LightRocket | beautiful pictures

LONDON – The Bank of England voted to raise its benchmark interest rate to 2.25% from 1.75% on Thursday, less than the 0.75 percentage point increase many traders expected.

Inflation in the UK eased slightly in August but at 9.9% year-on-year still above the bank’s 2% target. Energy and food saw the biggest price increases, but core inflation, which excludes those components, remained at 6.3% on an annualized basis.

The BOE now expects inflation to peak at just under 11% in October, down from its previous forecast of 13%.

The smaller-than-expected increase comes as the bank said it believes the UK economy has slipped into recession, as it forecasts GDP will shrink 0.1% in the third quarter, down from previous forecasts. that’s 0.4% growth. It will fall 0.1% in the second quarter.

Many analysts, along with the business association British Chamber of Commerce, had previously said it expected the UK to enter a recession before the end of the year. As with energy price shocks, it faces trade bottlenecks due to Covid-19 and Brexit, the decline in consumer sentiment, and retail sales fell.

The BOE reduced its key rate, known as the bank rate, to 0.1% in March 2020 in an effort to boost growth and spending amid the coronavirus pandemic outbreak. However, when inflation started to pick up at the end of last year, it was one of the first major central banks to start a bullish cycle at their December meeting.

Seventh consecutive increase

This is the seventh consecutive increase and brings UK interest rates to levels last seen in 2008.

In a statement explaining its decision, the bank noted the volatility in wholesale gas prices but said the government’s announcement of limits on energy bills would limit further increases in inflation to only consumer prices. However, it said there had been more signs since August of “domestic inflation continuing to rise.”

It added: “The labor market is tight and domestic costs and price pressures remain high. While [energy bill subsidy] inflation in the near term, which also means that household spending is likely to be less than forecast in the August Report for the first two years of the forecast period. “

Five members of its Monetary Policy Committee voted for a 0.5 percentage point increase, while three voted for a higher 0.75 percentage point increase that many had come to expect. One member voted for an increase of 0.25 percentage points.

The bank said it is not following a “set path” and will continue to evaluate the data to determine the size, speed and timing of future changes in the bank’s rates. The committee also voted to start selling UK government bonds held in its asset purchase facility shortly after the meeting and noted “a strong rise in government bond yields globally.”

The bank’s decision comes amid growing weakness GBPrecession forecasts, the European energy crisis and the program of new economic policies launched by the new Prime Minister Liz Truss.

Sterling hits new multiphase low against dollar for this week, traded below $1.14 through Wednesday and fell below $1.13 early Thursday. It has fallen sharply against the greenback this year and was last at this level in 1985. It gained 0.2% following the BOE decision with a gain of 0.5 percentage points fully priced in.

The pound’s devaluation was due to a combination of dollar strength – as traders flocked to the safe-haven investment amid volatile global markets and as the Bureau The US Federal Reserve raised interest rates – and dire forecasts for the UK economy.

Small Budget Friday

Meanwhile, the country new government established released several key economic policy proposals this month ahead of the “fiscal event,” known as the mini-budget, when they will be officially published on Friday.

This is expected to include reversing a recent National Insurance tax increase, tax cuts for businesses and homebuyers, and a plan for low-tax “investment zones”.

Shoes have many times stress committed to reduce taxes to promote economic growth.

However, the energy crisis also means that the government has announced a huge spending package to limit skyrocketing bills for family and businesses.

Data released on Wednesday showed the UK government borrowed £11.8 billion ($13.3 billion) last month, nearly double forecasts and £6.5 billion over the same period. 2019, due to increased government spending.

‘Important time’

David Bharier, head of research at the British Chambers of Commerce, said the bank faced a “difficult balancing act” in its use of blunt rate hikers to keep inflation in check.

“The bank’s decision to raise interest rates will increase the risk for individuals and institutions bearing the burden of debt and rising mortgage costs – undermining consumer confidence,” he said.

“Recent energy price cap announcements will provide some comfort to businesses and households and will put downward pressure on the inflation rate.”

“Banks, which are looking to dampen consumer demand, and governments, which are looking for growth, may now be pulling in opposite directions,” he added, adding that the minister’s upcoming economic statement Financials on Friday were a “critical moment”.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the bank was growing at a “reasonable pace” due to a lower inflation outlook and emerging stagnation in the economy.

Tombs forecast a 50-basis-point gain at the bank’s November meeting, with possible risks towards a 75-basis-point gain due to the hawkishness of the three committee members. This will likely be followed by a 25 basis point increase in December, bringing bank rates to 3% by year-end, and no further hikes will be expected next year, he said.

The UK is not alone in raising interest rates to fight inflation. European Central Bank rate of increase rose 75 basis points earlier this month, while Switzerland’s central bank Long walk by 75 basis points on Thursday morning. US Federal Reserve has increased its standard scale range by the same amount on Wednesday.

Why is food more and more expensive for everyone?



Source link

news7f

News7F: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button