bank of england
The Bank of England faces wide-ranging challenges ahead of this week’s meeting that will decide the fate of interest rates, especially given that monetary tightening on the heels and its widening effects have added to the pressure on Brits’ shoulders, especially for mortgages. loan holder.
While the UK economy participates against a backdrop of challenges faced by economies around the world, it is also unique in a third sense, both in terms of the long-term aftermath of the coronavirus and the ensuing war in Ukraine and its wider economic impact One factor exacerbating the pressure is the aftermath of Brexit, the impact of which is well known, with the UK economy in dire straits.
The scenario coincides with a loss of confidence among many Britons in managing the country’s financial and economic policies, and widespread discontent among workers in many sectors, adding to the scale of the crisis facing the country, while inflationary pressures escalate.
The Bank of England is widely expected to raise interest rates by another 25 basis points to 4.75% at its meeting next Thursday, the highest rate since 2008.
Enhance interest
In an exclusive statement to the Sky News Arab Economics website, British real estate expert Jonathan Rowland said the Bank of England was under a lot of pressure to keep rates on hold despite high inflation, noting that the “biggest The burden falls on the shoulders of homeowners who are obliged to pay their banks.
He added: “But despite these pressures, the reality is that if rates don’t rise, that will cause inflation to take longer to get back to the 2% target rate, so half a percentage point hike is possible, and I think we Only seeing a 25 percentage point increase (to 4.75%) could be seen as a compromise given these pressures.”
According to Rowland, “by the end of the year, the base rate could exceed 5%,” with all sorts of implications.
A Reuters poll suggested the bank may tighten monetary policy more aggressively than previously thought.
The UK expert noted that mortgage lenders are very confident about rising rates because they are busy striking deals and reissuing at higher rates, adding: “As for our government, it’s doing nothing and letting landlords and Tenants (rents increase when mortgages increase) are affected by all the resulting pain and suffering.”
He drew attention to the dilemma facing UK economic policymakers, asking: “Are they providing aid through grants and loans at the taxpayer’s expense to cushion the shock (caused by higher interest rates) but at the same time not Tolerance vs. inflation? In a more explicit sense: will they choose to be seen as heartless and do nothing, or be generous and fuel inflation?!
The country’s annual consumer price inflation slowed at its fastest pace in almost 30 years, falling to 8.7% in April from 10.1% in March, the first time inflation has fallen since August last year, data from the ONS showed single digits since.
The Bank of England has raised rates 12 times so far since December 2021, the most since 2008, after raising rates by 25 basis points last month to 4.5%, in line with previous expectations, as part of the Bank of England’s efforts to rein in inflation. Still the highest among all advanced economies.
The Bank of England is one of the first central banks to raise interest rates recently, ahead of the Federal Reserve and the European Central Bank, and is considered “although it is the first to raise interest rates, it may be the first central bank to raise interest rates.” Finally stop the policy,” according to a Bloomberg report, which pointed to a number of signs, including:
* UK bond yields rose to their highest level since 2008 on the back of strong labor market data.
* There are suggestions that the Bank of England will raise the base rate to 6% in early 2024.
Reaching such high interest rate levels creates broader pressures, especially for mortgage holders.
* Once monetary tightening is over, the first 25 percentage point rate cut is not expected to happen until late 2024.
The Bank of England is expected to raise interest rates by 25 percentage points, from 4.5% to 4.75%, at its meeting next Thursday, Tariq Al-Rifai, chief executive of Kunlun Center for Strategic Studies in London, said in an exclusive statement to Sky Arabia News. Take into account the current rate of inflation.
He explained that inflation in the UK remains at historically high levels and highlighted that expectations point to a slight decline in the current period, around 8.5% or 8.25% in May, while these rates remain high.
“I think the BoE remains clear on its policy of continuing to raise interest rates,” he added, noting that this policy is more accommodative than the Fed’s because it (the Bank of England) has raised interest rates in past periods when interest rates were lower, “I therefore think that the cause of high inflation in the UK is represented by the slow action of the Bank of England.
Confidence in the Bank of England falls
Confidence in the Bank of England has fallen to the lowest level in the UK due to the impact of the bank’s decisions on citizens since last year, and the continuation of these policies without perceptible improvements in prices, according to an Ipsos poll According to a survey by , the results are as follows:
* Only 21% of Britons are satisfied with the performance of the Bank of England and its policies to curb inflation.
* This percentage is the lowest since data began to be measured in 1999.
* 34% of Britons say they are ‘dissatisfied’ with their banks’ performance (highest percentage ever).
Mustafa Rajab, a researcher based in London and a member of the British Labor Party, commented on the situation in an exclusive statement to the Sky News Arab Economy website, “Economic instability at this stage is a phenomenon of the entire society. The world is witnessing The impact of the war in Ukraine, but the UK in particular is under widespread pressure, reflected in the decision of the Bank of England, which is trying to deal with the current high inflation rates in various ways and bring them down to the target natural level. Raise the interest rate to 5% for some time to come.
He explained that these policies were largely reflected in Brits, especially homeowners who took finance from banks and paid exorbitant bills as a consequence of raising interest rates in this way, reminiscent of London in the nineties The situation when banks are forced to foreclose on people’s homes (the defaulters) is a tragedy, especially for families.
He pointed out that at a time when the Bank of England is trying to adopt the necessary policies to fight inflation, the UK has suffered from rising commodity prices, but these policies linked to interest rate hikes have put great pressure on the UK, so ” We’re stuck in a vicious cycle,” not least because it doesn’t show signs of improving, especially given the intensification of the conflict in Ukraine, which could lead to “economic tragedy,” as he put it.
stagflation
The UK economy is suffering from severe stagflation at a time when the outlook looks very bleak, according to a report this week in the Financial Times, citing the woes of no growth in production since July last year as well as rising inflationary pressures and Wage growth increases, so almost none of us like the way the economy works.
– UK unemployment fell in April but wages continued to rise, suggesting the Bank of England will remain under pressure to raise interest rates.
The unemployment rate fell to 3.8% from 3.9% in March, the ONS said in a statement.
But average earnings rose 7.2 percent from a revised 6.8 percent in March, suggesting the Bank of England will remain under pressure to raise rates.
The report cited a statement by Bank of England Governor Andrew Bailey in which he said inflation was “on hold for a much longer period than we expected”.
The report quoted Adam Posen, director of the Peterson Institute think tank in Washington, as saying that compared with the United States and the euro area, the United Kingdom has more problems in terms of Brexit, loss of credibility in economic governance and legacy problems. Investment in public health services and transportation.
exit the eu
In a recent statement to The Telegraph, former Bank of England Governor Mark Carney argued that Brexit was partly responsible for high inflation in the UK.
In this context, Grant Amiot, a professor of European economic policy at Queen’s University, pointed out in an exclusive interview with Sky News Arab Economy that the attitude of British public opinion towards Brexit has changed, and pointed out:
* The reason behind this is the poor economic performance of the country since it left the single market at the end of 2020.
*While the impact was once overshadowed by COVID-19, it is now starting to show as the UK recovers more slowly than any other country in the G7.
* Statistics agency estimates 4-5% drop in GDP due to Brexit.
* For the general public, this poor performance manifests itself in weak public services, lower real incomes and high inflation (again higher than other G7 countries).
“Perhaps it’s inflation more than anything else that’s making people nervous about the consequences of Brexit (…) foreign companies are also saying they won’t invest in the UK now,” he added.
He believes that “this general regret about Brexit will not lead to London returning to the EU in the short term (..) A Labor government may reach some agreement with the EU to calm some questions about the consequences of Brexit. Brexit , but it will not try to join the EU or the single market.”
The International Monetary Fund has revised its previous forecast, predicting that the British economy will fall into recession this year, and the UK’s gross domestic product will grow by 0.4% in 2023. It previously expected that the British economy would contract by 0.3% in 2023. Its previous forecast made in April. However, this outlook is weaker than that of any major economy.
Tickmill: BoE will think twice before raising rates due to deflation