The Bank of England has warned that England will enter recession at the end of this year. The expected recession is predicted to be the longest recession since the global financial crisis.
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The Bank of England voted to raise its base rate to 2.25% from 1.75% on Thursday, lower than the 0.75 percentage point increase expected by many traders.
UK inflation eased slightly in August, however was 9.9% year-on-year remained well above the bank’s 2% target. Energy and food saw the biggest price increases, but core inflation, which excludes these components, is still at 6.3% year-on-year.
The BOE cut its key rate, known as the Bank Rate, to 0.1% in March 2020 to support growth and spending at the onset of the Coronavirus pandemic. However, inflation began to rise sharply late last year, making it one of the first major central banks to begin a hike at its December meeting.
This is its seventh consecutive increase and takes UK interest rates to levels last seen in 2008.
In a release explaining its decision, the bank said volatility in wholesale gas price announcements, but the government’s announcement of curbs on energy payments, would limit further increases in consumer price index inflation. However, he said there were signs of “continued strength in domestic inflation” since August.
He added: “The labor market is tight and domestic cost and price pressures remain high [energy bill subsidy] It moderates inflation in the near term, which also means that household spending will be less weak than predicted in the August Report over the first two years of the forecast period.
Five members of the Monetary Policy Committee voted in favor of a 0.5 percentage point increase, while three voted in favor of the higher 0.75 percentage point increase expected by many. One member voted in favor of a 0.25 percent increase.
The bank said it was not “on a predetermined path” and would continue to assess the data to decide the scale, pace and timing of future changes to the Bank Rate. The committee also voted shortly after the meeting to start selling UK government bonds held in the Asset Purchase Facility, noting a “sharp rise in government bond yields globally”.
The bank’s decision comes against an increasingly weakening backdrop British poundrecession forecasts, the European energy crisis and the new economic policy program to be introduced by the new prime minister, Liz Truss.
It hit new multi-decade lows against sterling dollars This week it traded as low as $1.14 by Wednesday and as low as $1.13 early Thursday. Against the dollar, it has fallen sharply this year and was last at this level in 1985. It rose exactly 0.2% after the BOE decision, up 0.5 percent.
The devaluation of the pound was driven by a combination of dollar strength – as traders flocked to investments seen as safe havens amid global market volatility and the US Federal Reserve raised its interest rates – and a gloomy outlook for the UK economy.
A large number of analysts, together with collaboration British Chambers of Commerce and BOE itself, they said they expected Britain to enter recession by the end of the year. In addition to energy price shocks, it faces trade bottlenecks due to Covid-19 and Brexit, dampening consumer sentiment and a decline in retail sales.
Meanwhile, the country newly established government Ahead of the so-called “fiscal event”, the mini-budget to be officially announced on Friday, this month has revealed numerous important economic policy proposals.
It is expected to include rolling back the recent increase in National Insurance tax, tax cuts for businesses and home buyers and a plan for low-tax “investment zones”.
there is a truss repeatedly emphasized commitment to lower taxes to increase economic growth.
However, the energy crisis meant the government announced a huge spending package to curb rising bills households and enterprises.
The UK government borrowed 11.8 billion pounds ($13.3 billion) last month, more than twice forecast and 6.6 billion more than in the same month of 2019, data published on Wednesday showed. £5 billion is too much.
The UK is not alone in raising interest rates to fight inflation. European Central Bank raised the rates The Swiss central bank increased by 75 basis points earlier this month marched Thursday morning by 75 basis points. US Federal Reserve System its elevated benchmark rate range same amount on Wednesday.
