By raising rates again, Bank of England warns of recession and 10% inflation

By raising rates again, Bank of England warns of recession and 10% inflation

The BoE’s move represented its fourth consecutive rate hike since December, the fastest pace in 25 years. The BoE said most policymakers believed “some degree of further tightening in monetary policy may still be appropriate in the coming months”. It dropped the word “modest” to describe the scale of rate hikes ahead. A split emerged, with two members saying the guidance was too strong given the risks to growth. Business groups expressed concern about Thursday’s move. “The decision to raise interest rates will cause considerable alarm among households and businesses given the rapidly deteriorating economic outlook and mounting cost pressures,” said Suren Thiru, head of economics at the British Chambers of Commerce. INFLATION TO TOP 10% British consumer price inflation hit a 30-year high of 7% in March, more than triple the BoE’s 2% target, and the central bank revised up its forecasts for price growth to show it peaking above 10% in the last three months of this year. It had previously predicted a peak of about 8% in April.

Economists polled by Reuters had forecast a more dovish 8-1 vote to raise the benchmark for borrowing costs to 1%, with one policymaker opposing a hike. Central banks are scrambling to cope with a surge in inflation that they described as transitory when it began with the post-pandemic reopening of the global economy, before Russia’s invasion of Ukraine sent energy prices spiralling. The BoE said it was also worried about the impact of renewed COVID-19 lockdowns in China which threaten to hit supply chains again and add to inflation pressures. But policymakers around the world are also trying to avoid sending their economies into a slump. “The point being is we are walking this very narrow path now,” Bailey told reporters. On Wednesday, the U.S. Federal Reserve raised rates by half a percentage point to a range of 0.75-1.0%, its biggest increase since 2000. Chair Jay Powell said further 50-basis-point hikes were on the table.

The BoE said British inflation would peak later than in other big advanced economies due to a cap on household energy tariffs. Fuel bills jumped by 54% in April and the BoE now sees a further 40% increase in October, hitting the economy. Real post-tax household disposable income – a measure of living standards – is forecast to fall 1.75% this year, the biggest calendar-year drop since 2011 and the second-biggest since the BoE’s records began in the 1960s. Voters in local government elections on Thursday are expected to punish Prime Minister Boris Johnson over the cost-of-living crisis and for breaking his own COVID lockdown rules. The BoE kept its forecast for economic growth this year at 3.75% but slashed its forecast for 2023 to show a contraction of 0.25% from a previous estimate of 1.25% growth. It cut its growth projection for 2024 to 0.25% from a previous 1.0%.

While growth in the first three months of this year has been stronger than the BoE predicted, it expects the economy to stagnate in the second quarter, due to an extra public holiday and reduced COVID testing. It sees a nearly 1% fall in GDP in the final quarter as the next energy price rise kicks in. Those forecasts were based on bets in financial markets that the BoE would increase rates to about 2.5% by the middle of next year, which the central bank signaled was probably too much. It said it expected inflation would fall to 1.3% in three years’ time, based on market pricing for interest rates, as higher unemployment and the cost-of-living squeeze hit the economy. That would be the biggest undershoot relative to its 2% target since the 2008-09 global financial crisis. The BoE also said it would work on a plan to start selling the government bonds it has bought since that crisis, which currently stand at just under 850 billion pounds ($1.05 trillion). BoE staff would update the Monetary Policy Committee on the plan at its August meeting which would “allow the Committee to make a decision at a subsequent meeting on whether to commence sales”. ($1 = 0.8067 pounds)

Disclaimer: If you need to edit or update this news from compsmag then kindly contact us Learn more

For Latest News Follow us on Google News


Latest Headlines
  • Show all
  • Trending News
  • Popular By week
Ubisoft Announces Two Xbox Game Pass Release Dates
Ubisoft Announces Two Xbox Game Pass Release Dates
For now, this is all we know about the future of Ubisoft on Xbox Game Pass. The company recently announced that its own service will be colliding with ...
Apple (NASDAQ:AAPL) target price has been lowered to $200.00
Apple (NASDAQ:AAPL) target price has been lowered to $200.00
A number of other equities research analysts have also recently issued reports on AAPL. New Street Research upgraded shares of Apple from a “sell” rating to ...
Roller Champions is coming to PS4 next week, and it’ll be free to play
Roller Champions is coming to PS4 next week, and it’ll be free to play
Roller Champions looks like it’ll tread similar ground to Rocket League, in that it’s an accessible, arcadey sports title you can hop into for a few rounds. ...
Thousands of people queue for gasoline and gas in Sri Lanka despite warnings of food crisis
Thousands of people queue for gasoline and gas in Sri Lanka despite warnings of food crisis
As citizens rushed to stock up on fuel, which is largely imported and in critically low supply due to the government’s lack of foreign cash, lines formed in ...
GfK reports UK consumer confidence is at historic low
GfK reports UK consumer confidence is at historic low
GfK’s gauge of economic optimism for the coming 12 months matched a record low hit in April 2020 as the coronavirus pandemic swept the country. While ...
HDFC holding FPI, HDFC Bank sinks amid strong domestic sell-off
HDFC holding FPI, HDFC Bank sinks amid strong domestic sell-off
“HDFC Bank (“HDFC Bank”) has been receiving queries from several investors seeking information on its aggregate foreign shareholding. With a view to have a ...
Braille displays will be natively supported on Android 13
Braille displays will be natively supported on Android 13
You’ll have access to “many” of Talkback’s features, whether it’s navigating the interface or shortcuts for common tasks like sending text messages. New ...
Lebanon's cabinet approved a plan for financial recovery
Lebanon’s cabinet approved a plan for financial recovery
Following the election of a new parliament on May 15 that will name a new prime minister, ministers agreed to the proposal in the cabinet’s final session ...
FINANCIAL TIMES PRESS DIGEST - MAY 20
FINANCIAL TIMES PRESS DIGEST – MAY 20
British e-commerce company THG Plc said on Thursday it rejected an offer from two investment groups. The move comes as local entrepreneur Nick Candy’s ...
Kenya's debt to China more than doubled last year
Kenya’s debt to China more than doubled last year
According to Business Daily Africa, Treasury expenditure data released this week shows that the amount repaid to Chinese lenders increased by 135.15 percent ...
Show next
We will be happy to hear your thoughts

Leave a reply

Compsmag - Latest News In Tech and Business
Logo