The UK’s economic stagnation is forecast to extend into the first part of this year, leaving policymakers with a challenging situation. A surprise half percentage point cut in interest rates was announced today, marking another step in efforts to boost growth. However, experts warn that stagnant economy may be accompanied by sharper inflationary risks due to higher energy prices.
Inflation is expected to rise sharply into autumn, approaching 4%, driven by rising gas prices. The Bank has warned of “stagflation,” a rare combination of zero economic growth and high inflation. A recession was narrowly avoided but the risk of little or no growth remains.
The uncertainty surrounding President Trump’s trade policy is also affecting the economy. The US tariff policies were not factored into today’s forecast, which predicted 0.75% economic growth this year – half the rate in November. Unemployment is expected to rise over the next two years to just below 5%.
Businesses are becoming increasingly cautious, with many firms citing tax concerns as a deterrent to investment. The Bank has also concluded that global events such as the pandemic and Brexit have impacted the economy’s productivity.
As policymakers navigate this challenging domestic landscape, they must also contend with rising global uncertainties.
Source: https://www.bbc.com/news/articles/cn4mpznd79zo