The Bank of England has warned that the economy of the United Kingdom is highly likely to continue to show zero growth until 2025 against the background of high-interest rates or even a continued increase in this indicator.
This statement was made after the aforementioned financial regulator left interest rates unchanged at 5.25% for the second time in a row. This indicator is the highest in the last 15 years.
British Prime Minister Rishi Sunak has promised to achieve the growth of the British economy by the end of this year. However, the forecasts of some experts assess the relevant prospect as unlikely.
The head of the Bank of England, Andrew Bailey, said that in the current economic and financial realities, it is too early to discuss the issue of lowering interest rates. At the same time, the financial regulator expects that a sharp decline in the inflation rate will be recorded in the coming months. This means that there is a chance of fulfilling Rishi Sunak’s promise to reduce the growth in the cost of goods and services by half, to about 5%, by the end of 2023, and is not something impossible.
Until September of this year, the Bank of England consistently raised interest rates. The relevant decisions were made by the financial regulator 14 times in a row. These actions of the Bank of England were aimed at curbing the process of inflation, which demonstrated steady growth and was a factor of negative impact on the material well-being of households, devouring their budgets.
The inflationary trend in the UK has caused an increase in mortgage payments. This circumstance has become a factor of pressure on borrowers. Also, the inflationary process has increased the level of savings.
Andrew Bailey stated that the Bank of England intends to adhere to a policy of high-interest rates until there is final certainty that inflation will return to the target of 2%.
The latest indicator of price growth for goods and services in the United Kingdom was recorded at 6.7% in the year to September.
The Bank of England foresses that the inflation figure will continue to show the dynamic of decline. The financial regulator expects that the weakening of the growth of energy and food prices will contribute to the implementation of this scenario. The Bank of England also predicts that inflation will remain at around 3% over the next year.
During a conversation with media representatives, Andrew Bailey said that if the conflict between Israel and Hamas spreads to the entire Middle East, it will become a factor of negative impact on the cost of energy. According to him, the threat to oil and gas prices in the event of a scaling up of hostilities is obvious. He also said that the Bank of England is closely monitoring developments in the Middle East. At the same time, Andrew Bailey stated that so far this conflict has not caused a significant change in the cost of energy.
The Bank of England does not forecast a recession. But at the same time, the financial regulator expects zero growth of the British economy until 2025. Andrew Bailey described the prospects for the recovery of positive economic dynamic as restrained, noting that the current situation is not unusual. According to him, in many other countries, there is a similar state of affairs.
British Chancellor Jeremy Hunt has promised that measures will be taken to resume the growth of the country’s economy. In November, he will unveil the government’s plans to stimulate the economic system. Also, according to him, as part of a preliminary study of possible efforts to achieve this goal, such options as raising private investment, returning more Britons to work, and creating a more productive state are being considered.
Labor, assessing the current situation, said that 13 years of economic collapse have worsened the situation of working people. The Liberal Democrats stated that the Bank of England’s decision on interest rates is little consolation for working families.
Modupe Adegbembo, G7 economist at Axa Investment Managers, says that it is impossible to exclude the possibility that inflation will be more stable than expected, and the corresponding trend will be observed for a long period, which will provoke the Bank of England’s actions corresponding to such a scenario in the form of holding high rates. At the same time, the expert notes that the financial regulator may reduce the mentioned indicator earlier and faster if the prospects of economic growth deteriorate rapidly.
As we have reported earlier, Bank of England Postpones Implementation of New Banking Reforms for Summer 2025.