The UK will be in recession from the end of 2022 to the end of 2023, according to the Bank of England

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The British central bank announced a hike in its key rates to curb inflation, but warned the country will go through a difficult period.

The Bank of England announced a half percentage point rate hike on Thursday, a drastic move to counter inflation that continues to accelerate to 40-year highs and which it says will plunge Britain into recession for more than a year.

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The BoE’s choice to raise rates to 1.75% with a 50 basis point increase, their biggest increase since 1995, risks weighing on the economy by making borrowing more expensive.

According to the monetary policy report, British inflation should continue to rise, to exceed 13% in October, and reach a record since the end of 1980, after having already reached 9.4% annually in June, fueling a cost crisis . life that particularly threatens less wealthy British households.

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The rise in gas prices since the start of the Russian invasion of Ukraine has caused the BoE to predict a painful revision of the electricity price cap charged to consumers by 75% in October.

UK energy regulator Ofgem further announced on Thursday that the cap would now be reviewed on a quarterly basis, compared to just twice a year so far, to improve market stability, which, in the context of the current situation , suggests another painful spike in prices beginning in January.

2023 no growth

The damage will be heavy for the economy: “we expect a contraction in production every quarter” between the last three months of 2022 and the last three of 2023, warns the Bank.

And “growth after this period is still very weak,” according to the issuing institute, which projects in detail a growth of 3.5% in 2022, a first GDP contraction of 1.5% in 2023 and a second of 0, 25% in 2024.

The BoE claims to be choosing to add additional weight to the economy as inflation begins to spread.

“A faster pace of monetary policy tightening ‘today’ should help bring inflation back to its 2% target over the medium term, and reduce the risk of a longer and longer tightening cycle.” expensive in the future”, explains the monetary regulator. committee.

The BoE is following the example of the US Federal Reserve and the European Central Bank, which chose to raise their rates by 0.75 and 0.50 percentage points respectively in July.

political criticism

Britain’s central bank has indicated it will vote in September on whether to start actively selling the bonds it holds under its asset purchase programme, and could start with drawing down its reserves, including maturing securities, by £80bn over one year.

He also notes that uncertainty around his projections is “exceptionally high”: not only is the war in Ukraine and Russian gas deliveries to Europe raising questions, but the UK government’s budgetary response to the fuel cost crisis is unknown. life.

Indeed, Britain’s Conservatives are in the process of naming their next prime minister, and how the government will fight inflation is a recurring topic of debate.

The leading candidate in the polls, Liz Truss, said she wanted to change the status of the BoE in any case so that it would target inflation more directly.

While the BoE was one of the first major central banks to raise rates in late 2021, some economists believe hikes in the middle of last year would have brought inflation under control before it took off.

Author: LT with AFP
Source: BFM TV

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