UK’s political turmoil is dragging on its economic decline. The economy is supposed to flunk into recession from the fourth quarter of 2022 along with the shrink in GDP in five consecutive quarters. The ascending inflation made the Monetary Policy Committee of the Bank of England vote 8-1 to increase the UK’s bank rate to half percent to 1.75% on Thursday. This is the highest increase ever since 1995.
CPI opines that inflation is expected to cross 13.4% in the fourth quarter of 2022. It will remain high in 2023 falling before the 2% target level in 2024. This rate is much higher than the May inflation as predicted by the Bank of England. Inflationary pressure has increased since May in the UK and Europe. Inflation is reflected in things such as the doubling of the wholesale gas prices since May. This is the result of Russia curbing its gas supplies to Europe and increasing the risk of further restriction of such necessities. The Bank of England expresses that inflationary pressures are anticipated to vanish gradually with the prices of the global commodities rising no further.
The predictions regarding inflation are based on uncertain lookouts. This uncertainty is based on the soaring high prices, especially energy prices, this is said that the Bank of England governor Andrew Bailey exclaimed on Thursday. The bank follows a 2% inflation target. MPC thinks that the inflation target applies at all times. It reflects upon the stability in prices in the UK’s monetary framework. The announcement on Thursday follows a similar action by the US Federal Reserve and the European Central Bank. The Federal Reserve last week announced a rate of 75 basis points. This is because the rate of inflation has increased by more than 9% in the US which is recorded as the highest in 41 years.
