Bank of England will raise the rate at the next meeting-Reuters
2022.12.08 01:43
Bank of England will raise the rate at the next meeting-Reuters
Budrigannews.com – A Reuters poll found that the Bank of England will raise Bank Rate by 50 basis points next week, bringing borrowing costs to 3.50 percent, despite the recession. This is to combat inflation that is more than five times its target.
After Russia’s invasion of Ukraine, which further disrupted supply chains still recovering from the coronavirus pandemic, inflation in Britain has been rife, as it has been in much of the world.
The sharpest increase in prices in 41 years occurred in October, rising 11.1% from a year earlier. Because the government introduced a tough budget to try to restore Britain’s fiscal reputation, consumers are also facing a record-breaking drop in living standards. This has exacerbated the problems consumers are experiencing.
The country is going through a winter of discontent as rail workers, teachers, and nurses go on strike to get better pay.
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In an interview that was published on Saturday, BoE rate-setter Swati Dhingra stated that raising interest rates could result in a deeper and longer recession. She also stated that there were few indications that demands for higher wages posed a risk of a wage-price spiral.
The Bank of England (BoE) was one of the first major central banks to begin unwinding the globally adopted ultra-loose policy during the pandemic. The BoE raised rates by 75 basis points last month, but all but two of the 54 economists polled expected them to increase rates by 50 basis points on December 15.
Elizabeth Martins of HSBC stated, “Almost a year to the day after the BoE began this tightening cycle, it looks set to deliver another Christmas hike.”
“We think it will be a 50 bp rise, bringing the Bank Rate to 3.50 percent,” the statement reads. “Risks are weighted more toward a larger 75 bp move than a smaller 25 bp move.”
In the poll conducted on Nov. 23, only two economists anticipated a 75 bp increase, compared to 13 of 56 respondents.
A separate Reuters poll found that the Federal Reserve of the United States is also expected to move down to a 50 bp move this month after four consecutive increases of 75 bp.
After the following week’s turn, the BoE will add one more 50 bps in the main quarter and 25 bps in the second, with medians showing Bank Rate topping at 4.25% then, at that point. The terminal rate was predicted to be 3.50 percent to 4.75 percent.
According to the survey conducted last month, the Bank Rate was anticipated to reach a peak of 4.25 percent in the next quarter. However, economists differed significantly in their predictions regarding when and where it would level out.
According to economists, there is a 85% chance that Britain will enter a recession within a year.
According to quarterly forecasts, the economy contracted by 0.2 percent in the previous quarter and will contract by 0.4 percent in the current one, meeting the technical definition of a recession. Then, it will shrink by 0.4 percent, 0.4 percent, and 0.2 percent in the first three quarters of next year.
In response to a different question, the majority of respondents predicted a prolonged and brief recession.
These projections were little changed from last month, but when asked about the risks to their GDP projections, 12 out of 18 respondents indicated that the risks were negative. The economy was expected to grow by 4.4% this year, shrink by 0.9% the following year, and then grow by 0.9% in 2024.
According to Capital Economics’ Paul Dales, “2023 will be a tough year for the economy as the effects of the previous rises in inflation and interest rates are felt.”
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“The good news is that we believe the recession will end in the second half of 2023, and a gradual fall in inflation will probably allow the Bank of England to cut interest rates in 2024 to boost the recovery.”
This quarter, inflation was expected to reach a peak of 10.9%, which was higher than the estimate of 10.7% that was made last month before falling. However, until the third quarter of 2024, it will not reach the Bank’s goal of 2.0 percent.
