Is the UK economy heading towards recession? 4 points to note

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Is the UK economy heading towards recession? 4 points to note

 Is the UK economy heading towards recession? 4 points to note

Highlights

  • Lifting the interest rate yet again, the Bank of England has warned that the UK economy might be headed towards a recession.
  • As per the latest BoE estimates, the UK inflation level may even hit 10% by the end of 2022
  • In 2023, the UK economy may contract by 0.25%, and this trend of contraction may continue over the next two years.

 Lifting the interest rate yet again, the Bank of England (BoE) has warned that the UK economy might be headed towards a recession. The meeting held by the BoE’s Monetary Policy Committee on 5 May resulted in an interest rate hike for the fourth consecutive time. The interest rate, which stood at a historic low of 0.1% prior to the pandemic hitting the economy, has increased over the past few months to 0.25%, 0.50%, 0.75%, and finally to 1% yesterday.

BoE’s MPC raised the interest rates to counter the rising inflation levels

        2022 Kalkine Media®

 Let’s look at 4 points about the current situation and recession fears. 

  1. The interest rate has never been this high in the UK since the global financial crisis of 2008. Hitting a 13-year high level on Thursday, the interest rate be lifted to counter the catastrophic impact of soaring inflation, which has recently reached a 30-year high level of 7% in March.

According to the estimates given by the BoE, the UK inflation level may even hit 10% by the end of 2022, leading to further escalation of the already worsening cost-of-living crisis faced by UK households.

  1. The UK inflation levels had been surging already and the escalation of the Russia-Ukraine war aggravated the situation. Dealing with the Covid-19 pandemic along with the impact of Brexit was already tough for the UK due to supply chain disruptions, labour shortage, rise in material costs, and so on. The recent impact of the war has led to additional troubles for the UK economy, and households are the worst sufferers, facing the rising energy and food bills.

The UK inflation levels had been surging already and the escalation of the Russia-Ukraine war aggravated the situation

2022 Kalkine Media®

  1. As the inflation and unemployment levels in the UK are on the rise, accompanied by sluggish GDP growth, the UK economy may shrink over the next year, as per BoE. In 2023, the economy may contract by 0.25%, and this trend of contraction may continue over the next two years. Soaring energy bills have been the major contributor toward the fall in the living standards of Brits. In October 2021, the energy price cap is anticipated to jump by 40%.

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Yesterday’s meeting of the MPC revealed that the rising prices of food, energy, and other essential commodities are not showing any signs of stabilizing anytime soon. Hitting the 10% mark in 2022, the inflation levels are expected to reach their highest level in 40 years. In the last quarter of 2022, the GDP growth will slow down, leading to overall contraction and a fall of 0.25% in the output next year. BoE isn’t expecting any growth in 2023, however, it expects 0.2% and 0.7% growth in 2024 and 2025, respectively.

  1. Controlling inflation isn’t the only thing that BoE is focusing on. As per BoE, if the inflation levels are bough under control, the unemployment levels are expected to go further up.

The unemployment levels are expected to go up because of the current economic turmoil

2022 Kalkine Media®

Even though the labour market has bounced back to the pre-pandemic levels of employment recently, the unemployment levels are expected to go up because of the current economic turmoil. By 2025, the unemployment level may hit 8% as per BoE.

RELATED READ: FTSE 100 moves higher after BoE’s rate hike announcement

Bottomline

The figures revealed by the BoE have put an additional burden on Chancellor Rishi Sunak to urgently take some steps for stabilizing the situation before the economy is pushed into a recession. The Boris Johnson government must step up to support the households struggling with rising bills, falling real wages, and job losses.

 Lifting the interest rate yet again, the Bank of England (BoE) has warned that the UK economy might be headed towards a recession. The meeting held by the BoE’s Monetary Policy Committee on 5 May resulted in an interest rate hike for the fourth consecutive time. The interest rate, which stood at a historic low of 0.1% prior to the pandemic hitting the economy, has increased over the past few months to 0.25%, 0.50%, 0.75%, and finally to 1% yesterday.

BoE’s MPC raised the interest rates to counter the rising inflation levels

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