“Hard Road Ahead”
Britain has one foot in recession
Britain is not only in a political crisis but also an economic one. Inflation recently passed the ten percent mark. Therefore, the impending recession can hardly be avoided. Treasury Secretary Hunt prepares the British for a difficult few months.
The British economy is on the verge of recession after a weak summer. Gross domestic product (GDP) from July to September was 0.2 percent weaker than in the previous quarter, according to the London statistics office. Economists polled by the Reuters news agency even expected a drop of 0.5 percent. If there are two negative quarters in a row, there is talk of a recession.
The Bank of England recently warned of the risk of a two-year recession. The government prepares the British for difficult months. “I am under no illusions that we have a rough road ahead of us,” Treasury Secretary Jeremy Hunt said of the GDP figures. “But to achieve long-term sustainable growth, we need to control inflation.” There is no other way. The inflation rate was recently above ten percent, which eats away at the purchasing power of consumers.
Britain’s central bank braced against escalating inflation with the biggest rate hike in decades, raising the key monetary policy rate by 0.75 points to 3.0 percent. It was the biggest hike for the Bank of England (BoE) since 1989, and it was in the midst of a looming recession. “If we don’t act consistently now, it will get worse later,” BoE chief Andrew Bailey defended the decision. Higher interest rates make investment and consumer loans more expensive, which can also slow down the economy. Recently, the economic trend has been clearly downward. In September alone, when Queen Elizabeth’s funeral was celebrated with a unique public holiday in which many businesses closed, the British economy contracted 0.6 percent.
The weak economic outlook provides a difficult backdrop for Treasury Secretary Hunt’s budget statement next week. In response to the data, he reiterated his warnings against tough tax and spending decisions to restore Britain’s public finances and the government’s credibility in economic policy after Liz Truss’s brief tenure as prime minister.
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