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The Bank of England raises UK interest rates to 4%.degree of interest

of bank of england raised rates from 3.5% to 4% for the 10th time in a row on Thursday, but inflation may have peaked and the UK recession will be shorter and shallower than previously feared. Stated.

The bank’s Monetary Policy Committee (MPC) has added more pressure on mortgage payers and firms struggling to repay loans as private sector wages rose above the central bank’s previous forecast. said there is.

The bank, which released its latest outlook for the economy along with the interest rate decision, said inflation “has likely peaked” and said the recession was less severe than previously forecast, but brexit The economy was hurting faster than expected.

“Brexit is … something that has attracted our country’s output potential, and that has been our assessment for many years,” said Bank Deputy Governor Ben Broadbent.

“We haven’t changed our estimates of long-term impacts, but we’re bringing forward some of them and I think they’re probably happening sooner than we originally expected. Based on this, we believe that these effects are being realized sooner than originally anticipated.”

Forecasting a shallower recession, the bank said economic output will fall 1% from peak to trough, compared with a 3% decline expected at the time of its November outlook.

Banking staff have raised their forecast for UK GDP growth to 0.1% in the final quarter of 2022 GDP. This means the UK narrowly avoided entering a technological recession late last year after its economy contracted in the third quarter. Official numbers for fourth-quarter growth will be released next week.

However, the economy is expected to contract in each quarter of 2023 and the first quarter of 2024, with a modest recovery expected.

Governor Andrew Bailey said inflation had reversed after a dramatic drop in gas prices in international markets, but wage increases and the possibility of higher gas prices later this year could return. , and there was a strong risk that inflation could rise again.

He added that the risk of a rebound in inflation is at the highest level in the MPC’s 25-year history.

The World Bank estimates that this year’s headline inflation rate will be 10.5% in December We will raise it to 3.5% by the end of the year and 1% in 2024. The bank has set his 2% inflation target.

Shadow Prime Minister Rachel Reeves has accused cabinet ministers of sitting in silence while her family struggles with higher inflation and higher interest rates. “Families across the country will be worried about what today’s rise in interest rates means for them,” she said.

The Resolution Foundation think tank said the bank’s analysis showed the UK was in the midst of its weakest growth period in two decades since before World War II. It is in the midst of a 20-year period of average annual growth of 1% from 2015 to 2025, with the 20-year period from 1919 to 1938 having the lowest growth rate,” the report said.

Jeremy Hunt’s tax hike is set to hit household incomes from April, cutting next year’s GDP growth by 0.4%, the bank calculates.

Hunt said keeping inflation down is his top priority in response to the bank’s recent rate hikes. This is “the greatest threat to a generation’s living standards and we support the actions of today’s banks as they will succeed in halving inflation this year”.

He said the government’s tax policy “is in line with the bank’s approach, including resisting the current urge to fund tax cuts through additional spending and borrowing. This will It will only add fuel to the fire of inflation and prolong the suffering of all.”

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The 0.5-point rise was predicted by Citi analysts who expect banks to raise interest rates again to 4.5% in the spring, before a series of rate cuts next year brings them back to 3.5%.

More than 1.5 million mortgage payers are expected to suffer an average of £3,000 a year in interest payments if they refinance their loans this year. So are the hundreds of thousands of households that refinanced at higher interest rates in 2022.

Monthly bills for households in the rental sector have skyrocketed, with landlords blaming rising borrowing costs.

Two members of the nine-country MPC voted to keep the rate at 3.5%, arguing that the effects of previous rate hikes had not yet permeated the economy.

Silvana Tenreyro and Swati Dhingra are both graduates of the London School of Economy To the MPC, the central bank has underestimated the impact of previous rate hikes and needs to pause to determine the impact on mortgage holders, renters and small businesses before taking further action. I warn you over and over again.

The MPC majority’s view was that it would “continue to closely monitor signs of sustained inflationary pressures, including tighter labor markets, wage growth and service inflation movements.” “Evidence of more sustained pressure would require further tightening of monetary policy,” he said in a warning to workers.

The MPC has said GDP will reach its 2019 peak in 2026, with labor shortages and higher energy prices due to the Covid-19 pandemic and Brexit combined to slow the economy’s growth potential. indicates that you have

After the turmoil in financial markets following Liz Truss’ mini-budget, investors expect rates to peak at 5.25%, while the highest they expected before today’s meeting was 4.5%.

Private sector wages rose 7.2% in the three months to November. Official figures show that workers in the financial services sector and business services sectors such as accounting and the legal industry had the highest rises. Industry research shows that most wage increases negotiated are around 4%.

https://www.theguardian.com/business/2023/feb/02/bank-of-england-raises-uk-interest-rates-to-4 The Bank of England raises UK interest rates to 4%.degree of interest

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