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Highlights
- The CBI says recovery of businesses was strong in the last three months
- The Bank of England may soon raise policy rates after a strong economic growth forecast
- The Bank of Canada recently ended its QE program
Businesses in Britain showed signs of growth in the three months ending October, the Confederation of British Industry (CBI) confirmed on Sunday, October 31, 2021.
Better recovery, better GDP growth
Though supply chain disruptions and a resurgence of the Covid pandemic marred the outlook in the three months, businesses have managed a stronger-than-expected revenue growth. In August 2021, the monthly growth indicator of the CBI had hit +34, the highest level attained since 2014. This dropped to +27 in the September month, however rose to +29 in October.
Recently, the Office for Budget Responsibility had upgraded the economic growth forecast for the year. The country is now expected to grow by 6.5 per cent in 2021 and 6 per cent in 2022. In 2020, the UK economy had contracted by nearly 10 per cent.
Policy rate hikes may come
With the global economy showing enough signs of rebound from the pandemic-induced slowdown, major central banks like the Fed and the Bank of England are expected to soon raise policy rates.
The Bank of Canada recently announced the end of its bond purchasing program. Analysts say that rate hikes might come earlier-than-expected in Canada due to record high inflation. In the UK, some experts see rate hikes coming as early as the coming week. Most central banks have kept rates at near-zero levels since 2020 to boost their economies.
Also read: Is Bank of Canada hiking policy rate to 0.5% in 2022?
The revival of businesses in the UK, as reflected in the CBI report, can act as a driving force behind rates hike. The Bank of England may assume that the economy can be left in the hands of natural forces rather than artificially infusing liquidity through low interest rates.
Also read: How are low interest rates helping Canada & US?
On the other hand, a full recovery is still elusive. In October, British petrol stations ran dry. Prices of energy are skyrocketing, and there is a shortage of tanker drivers. All these point toward supply crunch in the economy.
