In the United Kingdom, the executives of local companies appealed to the Bank of England to lower interest rates shortly, arguing that this decision by the financial regulator would be able to support the country’s weakening economic system after the so-called depressed confidence turned out to be at a four-month low.
There are currently growing fears of a recession in the UK. In the space of public discussion, the corresponding risk acquires more and more stable features of a realistic scenario. Amid the sentiment, which is filled with anxiety about the prospects for the near future, the Institute of Directors (IOD) Economic Confidence Index fell to minus 28 last month. In November, this figure was minus 21. The December result is the worst since August.
The economic confidence index reflects the degree of optimism of company executives. In this case, it means how they assess the prospects for the development of processes in the space of the economic system for the next 12 months. The December result indicates that company executives, at the level of forecasts and assumptions, do not perceive 2024 as a period of growth and prosperity.
Roger Barker, Director of policy at IOD, said on Wednesday, January 3, that earlier interest rate cuts by the Bank of England would be a justified decision in terms of promoting business confidence. According to him, the mood of the company’s executives at the end of 2023 can be described as a relatively depressed state.
Currently, in the UK, experts believe that the Bank of England will begin implementing a policy of gradually reducing interest rates in May. This assumption is based on the fact that the attention of politicians is more focused on the risks of economic stagnation, rather than on high inflation.
Investors have also been betting more and more recently that the Bank of England will cut interest rates shortly. Such sentiments are not consistent with the official position of the British financial regulator. The Bank of England is currently of the opinion that the cost of borrowing should be high for a long period to contain inflation. Currently, in the United Kingdom, the growth in the cost of goods and services is almost twice the target.
Despite the statements of the Bank of England, the markets expect that interest rates will decrease several times by the end of this year.
In the third quarter of 2023, the economy of the United Kingdom demonstrated a negative dynamic. In October, the country’s GDP fell. Against this background, the leadership of the United Kingdom in November and December intensified its efforts to support the economy to avoid a technical recession, which is stated in the case of two consecutive quarters of production cuts.
For political forces in opposition to British Prime Minister Rishi Sunak, a potential recession may become the main argument against an opponent ahead of elections this year.
Roger Barker says that in the context of easing inflationary pressures, business needs to be stimulated, noting that appropriate measures can ensure significant economic growth in 2024. According to him, over the past couple of months, some aspects of the business environment have improved, especially concerning the growth in the cost of goods and services, but so far these circumstances have not significantly influenced the decisions of company executives.
It is noteworthy that the confidence of the business community in the economy of the United Kingdom is showing a decline, but their mood towards their own activities has improved.
As we have reported earlier, Bank of England Warns of Zero Growth in British Economy Until 2025.