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Recession alert: ‘UK fares worse than EU & US’ after Bank of England raises rates of interest | Personal Finance | Finance

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The central bank’s Monetary Policy Committee (MPC) opted to extend the bottom rate from 1.25 to 1.75 percent in an try and combat the rising inflation rate. Currently, inflation within the UK is at 9.4 percent but is anticipated to exceed 12 percent in the approaching months because the Bank of England prepares for a recession. Financial analysts are sounding the alarm that the Bank of England’s latest intervention is bad news for investors, savers and homeowners and shows the state of the UK’s economy as compared to the USA (US) and European Union (EU).

Returns on peoples’ savings are being diminished because the rise within the inflation rate and mortgage holders will see their payments go up as a result of the brand new rate of interest hike.

On top of this, market analysts consider one other base rate increase to 2.25 percent is looking increasingly likely.

Against the US dollar, the British pound sterling has seen a ten percent year-to-date depreciation of its value.

Just like the Bank of England, the US’s Federal Reserve is reportedly set to lift its own rates of interest by either 0.50 or 0.75 percent.

READ MORE: State pension set to rise next yr but 520,000 people will miss out

Compared, the worth of the EU’s euro against the British pound sterling looks also to be “under pressure”, in line with experts at CMC Market.

Michael Hewson, the chief market analyst at CMC Market, outlined how this week’s base rate hike is affecting the UK’s standing in the worldwide economy.

Mr Hewson explained: “The Thursday announcement from the Bank of England has all of the signs of a dovish response.

“It has sent the pound sharply lower across the board, with the potential to check key support levels at 1.1980 against the US dollar and 0.8480 against the euro.”

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In its announcement yesterday, the Bank of England confirmed the UK is forecast to enter recession in the ultimate quarter of this yr.

Once this happens, the UK economy will contract by 1.25 percent in 2023 and 0.25 percent in 2024.

The central bank also warned that inflation will likely be the first issue for the country going forward as its rate will unlikely fall below two percent before 2024.

Inflation is anticipated to peak at 13.3 percent in October and proceed rising throughout next yr.

READ MORE: Britons in higher bracket can do 2 major things to cut back tax payments

Mr Hewson explained why the UK economy currently “fares worse” to its counterparts within the US and EU.

On the state of the country’s economy, he said: “The UK currently fares worse than each the EU and the US.

“That is as a result of its closer dependence on energy shocks than the States and fewer government intervention to melt the blow in comparison with its European counterparts. Government bonds in all three markets all rose in prices on Thursday.”

James Smith, ING Developed’s Markets economist added: “The proven fact that the Bank is stepping up the pace of rate hikes while also forecasting a meaningful recession shows just how fearful it’s that employee shortages and provide issues could keep inflation elevated whilst the economy weakens.

“In other words, it’s the availability side of the economy – far more so than what’s happening with demand – that may heavily determine when and after what number of more hikes the BoE will stop tightening.

“The Bank will need to see signs that skill shortages are easing and that wage pressures are showing signs of abating.

“On condition that just one official dissented on the choice, and the proven fact that the Bank reiterated its willingness to act ‘forcefully’ to curb inflation, we expect there’s a robust possibility of one other 50 basis point hike in September – particularly if that’s what each the Fed and ECB find yourself doing too.”

The Bank of England’s MPC will likely announce one other rate of interest rise after its next meeting on September 15.

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