Finance analysts are alarmed about the UK economy probably tumbling into a much deeper recession if the central bank continues raising interest rates. The bank of England announced a 0.50% increase in the UK base rate to 1.75% last week. Its MPC (Monetary Policy Committee) implemented this move to combat the record-high inflation rate that is hurting consumers and savers. The UK inflation rate currently stands at 9.4% and might exceed 13% in a few months.
Analysts at the bank of England have warned that inflation might remain high for about one year as the economy heads towards a recession. The financial institution raised borrowing rates concurrently in the last six months to avoid a further economic downturn. Nonetheless, financial analysts are alarmed that additional borrowing rate increases will subject the economy to a much deeper downturn. This situation has resulted in confusion.
XTB financial brokerage market analysts have outlined the dingy situation facing the UK economy. The brokerage recorded more investors selling out pound sterling positions due to the UK's most substantial borrowing interest rate hike since 1995. Although the rate hike was widely probable, the GBP moods of investors dampened due to the Bank of England's hostile rhetoric on its economic outlook. The bank predicted that the UK economy might shrink in the final quarter and probably suffer a downturn throughout 2023.
Top financial analysts have noted that the central bank of England has run out of options to avoid a recession in the following months. The bank is stuck in between a hard place and a rock. Generally, inflation rates are expected to hit the 13% peak in a few weeks. The new inflation rate is far higher than analysts’ projections and might force the central bank to act faster to increase borrowing rates to restrain the cost pressure. Yet, there is the possibility that England's economic activity shrank constantly throughout this year.
Individuals with debts and mortgage holders are some who will face the worst rate hike impacts. Although building societies and many banks pass down the rate hikes to customers, savers might get a return following the record-high inflation rate. The hard part is that it is somewhat complicated to enact positive changes through interest rate hikes. Besides, the Bank of England was too slow on borrowing rate hikes and could not use it to stabilize the economy due to the current low economic activities.
The bottom line is that these reports do not spell good news for the UK economy and its sterling pound. Therefore, financial analysts are keen to check out the bank's next move this month. Generally, the ongoing Russia & Ukraine war, post-Covid19 pandemic impacts, and challenges in top economic players like China worsen the situation. One thing that is most probable to occur now is that most economies worldwide might fall into an economic downturn.
