West News Wire: The Bank of England increased interest rates for the twelfth time in a row on Thursday, from 3.5% to 4%, but added that a recession in the UK would be shorter and weaker than originally anticipated and that inflation may have peaked.
The Bank’s monetary policy committee (MPC) said the 0.5 percentage point increase was required because private sector earnings have increased faster than the central bank had anticipated, adding to the strain on homeowners and businesses that are having trouble repaying their loans.
The Bank updated its economic outlook, noting that inflation “is likely to have peaked” and that a recession would be milder than anticipated, but that Brexit was hurting the economy more quickly than it had anticipated.
“Brexit has been something that has pulled on our potential output in our country and that’s been our assessment for many years,” said Ben Broadbent, a deputy governor of the Bank.
“We’ve not changed our estimate of the long-running effects, but we’ve brought some of them forward and we think they’re probably coming in faster than we first expected. Based on the numbers for trade and some degree for the numbers on investment, we think these effects are coming through faster than initially envisaged.”
Predicting a shallower recession, the Bank said economic output would fall by 1% from peak to trough, compared with the 3% drop it was expecting at the time of its November outlook.
Bank staff raised their forecast for the UK’s GDP growth rate in the final quarter of 2022 GDP to 0.1%, which would mean the UK narrowly avoided entering a technical recession at the end of last year after the economy shrank in the third quarter. Official figures for fourth-quarter growth will be published next week.
However, the economy is forecast to contract in each quarter of 2023 and the first quarter of 2024 before staging a modest recovery.
The governor, Andrew Bailey, said inflation had turned a corner after a dramatic fall in gas prices on international markets, but there was a strong risk that rising wages and a possible return of soaring gas costs later in the year would push inflation higher again.
