And while the UK economy is the only one among developed economies still suffering from double-digit inflation rates, the chances of abandoning this policy seem theoretically low for the foreseeable future at least over the summer, despite risks arising from the policy of rapidly increasing interest rates.
Since December 2021, the Bank of England has raised rates 12 times so far, reaching their highest levels since 2008. On Thursday, the Bank announced a 25 basis point hike in interest rates to 4.5 %. The Bank of England’s latest move was in line with previous expectations, as part of its efforts to contain inflation, which remains the highest of all advanced economies. The Bank of England has announced that it “rules out a recession in the UK economy”.
Limited options in a difficult situation
“I think the Bank of England has been trapped in a difficult situation with no choice but to raise interest rates, and it is possible that they will continue to raise interest rates over the summer” , said Jacob Kierkegaard, principal investigator at the Peterson Institute. for the international economy. .
He justifies this by saying: “Inflation is just too high in the UK, twice as high as in the US and much higher than EU levels too.
The international economist points to a number of reasons that led to this scene. The most important of them:
Low productivity in the UK. An inflexible labor market with a major post-Brexit shortage of many EU workers. Trade relations affected by Britain’s exit from the European Union.
And while the British Central Bank has so far failed to control the pace of inflation rates, which are still above 10% and the highest in Western Europe, the Governor of the Bank, Andrew Bailey, said Thursday: “Let’s be clear, inflation is still very high (..) We must continue the course to ensure that inflation comes down to the 2% target.”
It comes at a time when the UK economy is suffering major challenges with high inflation and falling growth rates, as Britain is the only Group of Seven country that has not returned to pre-conditions. the spread of the Corona epidemic.
To slow down
On the other hand, Elizabeth Carter, an academic specializing in European affairs, assistant professor at the University of New Hampshire, indicates in exclusive statements to “Sky News Arabia Economy” that the Bank of England risks slowing the pace of mobilization rates, along with trends from the US Federal Reserve and the European Central Bank as well.
Since last year, the US Federal Reserve has raised interest 10 times, to between 5 and 5.25%, the highest level since August 2007. While the European Central Bank has raised interest 7 times since ‘last year ; to contain inflation, at 3.75%.
In its latest statement, the ECB kept its interest rate options open as its fight against inflation continues, but did not mention the need for further increases. The language of the U.S. Federal Reserve in its recent statement also made clear changes, saying it “will monitor upcoming data” to determine if further rate hikes are appropriate, instead of saying it “s ‘expects’ that there is a need for more rate hikes, and what was seen as a clear sign, that he will most likely turn to stopping the rise in interest rates.
Returning to Carter’s statements, she explains that the rapid rise in interest rates in past periods has left many worries, especially with regard to economic recession, and even reaching a global financial crisis similar to the 2008 crisis.
The Academy specializing in European Affairs deduces this from the banking crisis in the United States of America, and after regional banks were thus affected by interest rates, and which led to the failure of several banks recently, causing widespread fear in the markets.
Britain has an inflation rate that is “the highest in Western Europe”. The country’s consumer price inflation rate was 10.1% in March, down slightly from 10.4% in February, according to data from the UK Office for National Statistics. Food and non-alcoholic beverage prices rose 19.1% year-on-year in March (the biggest increase since August 1977).
Keep an eye on new data
According to analysis by James Sellars, in British Sky News, April inflation data is likely to offset the effects of the rise in household energy bills seen in April 2022, as the cost of fuel rose. now considerably reduced. At the same time, he points to the expectations of some economists that the CPI figure for April will be below 8% solely due to the energy impact alone. Of course, this does not necessarily mean that prices are falling and that the cost of living crisis is over.
The possibility that the Bank of England will end its fiscal tightening policy largely depends on the data to come, before the next meeting on June 22nd.
For his part, the historian and parliamentary journalist, Adel Darwish, declared in exclusive statements to the site “Sky News Arabia Economy” that the Bank of England would probably follow the policy of the American Federal Reserve in the event that the latter stops raise interest rate.
However, he reiterated the need for caution, given that the inflation rate in Britain was still high, and therefore “this is the difficult choice currently facing the Bank of England”, explaining that the coming months will be decisive for making a decision in this regard.
The historian and parliamentary journalist identifies two main factors which govern the orientations of the monetary policy of the Bank of England, with regard to interest rates, namely: “American interest rates, and the figures of the second quarter of this year regarding the country’s inflation rate, growth rates, productivity, government debt, etc.”
And the bank interest rate had stabilized at 0.1% in December 2021 before the tightening cycle began to cope with the pace of price increases, which was initially caused by the economies returning to work after the Corona pandemic, then episodes of rising interest rates followed with rising inflation rates affected by the consequences of the war in Ukraine.
BoE Governor’s warnings
For his part, Anwar Al-Qasim, an economist at the Financial Times newspaper, said in exclusive statements to the Sky News Arabia site that interest rates “have reached their highest level in 14 years to help reduce inflation which harms people,” explaining that the Governor’s Bank of England has warned that interest rates will rise again if prices continue to rise, when she said: “I would say to the people who set the rates: please understand the fact that if you look at inflation, interest rates will have to come down even more, and high inflation will not help anyone.
If monetary costs for energy, labor and supplies rise and prices do not, bank managers across the country will be watching businesses closely, a troubling experience.
And he adds: “The Bank of England is making no secret that it is still a long way from feeling comfortable controlling price pressures”, noting that the UK is suffering from above-average inflation. the bank’s 2% target, due to a combination of factors, including supply chain disruptions from the impact of the Corona pandemic, rising energy prices and rising prices world raw materials.
In the same context, he notes that the price level of the British currency is hovering around the lowest price since 2016, and fears that Britain could fall into economic recession or even “inflationary stagnation” have pushed the pound sterling to lose 4.5% against the dollar.
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