Boe says uk may already be in recessionwritten by Bella Palmer
Official figures from the Office for National Statistics show the economy shrank 0.1% in the three months to June, and has continued to contract
Experts at the Bank of England (BoE) have said that the UK economy is already in recession after gross domestic product (GDP) shrank for the second straight quarter.
Official figures from the Office for National Statistics show the economy shrank 0.1% in the three months to June, and has continued to contract.
Members of the Monetary Policy Committee now believe the economy continued to shrink by 0.1% in the quarter to September. The Bank had previously expected the economy to grow during the period.
That would push Britain into a technical recession – defined as two straight quarters of economic decline.
Markets had been betting the central bank would follow its US counterpart and lift rates by a larger 75 basis points, but the Bank settled on a dovish course.
The (MPC) decided to raise rates to 2.25% – their highest since November 2008 – from 1.75%, in an effort to grapple big increases in the cost of living.
Policymakers also voted unanimously to reduce quantitative easing by £80bn over the next 12 months to £758bn.
In committee minutes, it said the ‘tight labour with wage growth and domestic inflation’ above targets called for a ‘forceful response’.
Separate analysis from the ONS point to wages falling behind price rises, with unemployment at record lows, and employers struggling to fill vacancies.
The Bank is lifting rates in a bid to bring inflation, currently running at 9.9%, back to its 2% target.
In the September meeting, the MPC said inflation is now not due to soar as high as previously expected after government announced plans to freeze energy prices for households earlier this month.
However, Consumer Price Index (CPI) inflation is now set to peak at ‘just under 11%’ in October, marking the highest inflation the nation has witnessed since January 1982.
Alice Haine, personal finance analyst at Bestinvest, said: The Monetary Policy Committee’s 5-4 vote in favour of the 0.50% hike sends a strong signal that the Bank is serious about getting inflation back down to more palatable levels in the medium term, with three members voting for a more aggressive 0.75% hike, as it looks to curb the worst bout of inflation in 40 years and edge closer to its target of 2%.
She said: Prime minister Liz Truss’ energy plan has taken some of the heat off the Bank as the fiscal move to freeze utility bills at £2,500 for two years for the typical household and extra help for businesses could reduce the inflation peak by several percentage points leading to a milder than expected recession. But it has not solved all the central bank’s woes.
The Bank said that uncertainty in the outlook for energy prices has fallen after the government announced it would cap bills at £2,500 for the average household for two years.
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