June 13, 2024

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The Bank of England raised interest rates to 4 percent, the tenth consecutive increase

The Bank of England raised interest rates to 4 percent, the tenth consecutive increase

On Wednesday, and US Federal Reserve Raise interest rates a quarter point, to a range of 4.5 to 4.75 percent. It was the Fed’s eighth increase in a year but the smallest since March, as officials said inflation was finally beginning to subside measurably.

the European Central Bank It also raised interest rates on Thursday by half a point and said another half point increase is likely to come in March, as inflation remains very high, although the overall rate appears to have peaked. In the Eurozone, core inflation, which excludes energy and food prices, is at a record high of 5.2%, and there are other signs of strong inflationary pressures. “We know we’re not done,” said Christine Lagarde, the bank’s president.

On Thursday, the Bank of England also updated its outlook for the economy, providing a much less bleak forecast than it was three months ago.

In 2023, the bank expects the economy to contract by half a percentage point, instead of the 1.5 percent contraction it predicted in November. The contraction is expected to continue for five quarters of the current quarter, but it is a milder recession than previously expected due to lower wholesale natural gas prices, the expectation that the central bank will not have to raise interest rates as high as previously expected, and the unemployment rate rose less than expected. earlier, giving consumers more confidence to spend. The bank’s forecast was based on financial market expectations that the interest rate would peak at 4.5 percent in the middle of the year.

But the outlook still cannot be called good. The British economy is not expected to reach epidemic proportions before 2025, which falls short of the Bank’s projections.

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Earlier this week, the International Monetary Fund lowered its forecast for the British economy, predicting a contraction of 0.6 percent in 2023, instead of the 0.3 percent expansion it predicted last October. The size of the decline is not far from the Bank of England’s new forecasts, and the Fund’s predictions stand out because they presented Britain as an exception. The International Monetary Fund raised its forecast for global growth.

Among the challenges facing the British economy is the size of its workforce, which has not returned to its epidemic level. Since February 2020, half a million more people have been deemed economically inactive, workers over 50 are retiring early, and more people are reporting a long-term illness. Tightening of the labor market limits potential growth and puts upward pressure on private sector wages.