UK heads for ‘worsening economic crisis’ as recession looms – Business Live | Company


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Bank of England Governor Andrew Bailey has hit back at criticism of his handling of the crisis, as pressure on Britain’s main central banker mounts.

In an interview with the BBC’s Today program which we will hear later, Bailey denied that the Bank had been too slow to start raising interest rates.

Yesterday Attorney General Suella Braverman said interest rates should have been raised a long time ago (the Bank started raising rates last December)

The two candidates to become the next Prime Minister clashed last night over the solution to the crisis.

Liz Truss claimed that a recession was not inevitable and that cutting taxes would help the economy grow. She promises an emergency budget if she succeeds Boris Johnson.

But Rishi Sunakwho appeared after Truss for a grilling of Tory members on Sky News, stepped up his criticism of Truss’ £30bn plan for unfunded tax cuts, saying it would lead to ‘misery for millions’ .

Sunal warned:

“The economy lights are flashing red and the root cause is inflation. I’m afraid Liz Truss’ plans will make things worse.

“If we just add fuel to the fire of this inflationary spiral, all of us, all of you, are going to end up with higher mortgage rates, savings and pensions that are being eaten away, and misery for millions. of people.”

Here is the full story, by my colleague Heater Stewart:

Intro: UK faces ‘worsening economic crisis’ as recession looms

Hello and welcome to our ongoing coverage of business, the global economy and financial markets.

The UK is heading for deeper economic misery, after a horror show from the Bank of England’s economic forecast yesterday.

Britain faces a bleak outlook – heading into a recession this winter that will last more than a year, with inflation up more than 13%. Unemployment will rise and households will face historic pressure on living standards following the sharp rise in gasoline prices, the BoE said.

The economic costs of Vladimir Putin’s invasion of Ukraine have mounted, adding to an economy already hit by the pandemic and adjusting to the reality of Brexit.

The Bank’s grim warning was accompanied by the biggest interest rate hike in 27 years on Thursday, as its policymakers desperately try to rein in inflation (currently at 9.4% and rising).

Jack Leslie and james Black-smith of Resolution Foundation analyzed the Bank’s monetary policy report and say its forecast is “disastrous” for living standards.

They warn:

Despite the government spending more than £30bn in support, the Bank predicts the economy will fall into recession later this year, contract for six successive quarters and not recover to pre-pandemic levels over the next the forecast period (ending mid-2025). Inflation should now peak higher – at 13.3% in October – and high inflation will now be with us for longer.

All of this is disastrous for living standards: the Bank now expects real household disposable income to fall by around 3.7% over 2022 and 2023 – the biggest drop on record.

To pile misery on families, the Bank predicts that unemployment will rise by around 900,000 people; the Bank believes this is sufficient to prevent inflation from taking hold.

what today @bank of england do household announcements mean? Average real after-tax household income is expected to fall by around £2,000 this year and next. The government will inevitably have to do more to protect families from the worst effects of this crisis. pic.twitter.com/NN1AxQ5152

— Resolution Foundation (@resfoundation) August 4, 2022

But the big news is the Bank’s gloomy outlook for this winter, with inflation expected to peak at 13.3% in October, higher than previously thought. Moreover, this high inflation should also last longer, reflecting the increase in gasoline prices. pic.twitter.com/mQeQmQ2NCv

— Resolution Foundation (@resfoundation) August 4, 2022

A weaker economy is expected to cause the unemployment rate to rise from its current level of 3.8% to over 6%. This, combined with higher and sustained inflation, means that real household disposable income could fall by 3.7% in 2022 and 2023. pic.twitter.com/hmvD99wtJT

— Resolution Foundation (@resfoundation) August 4, 2022

Rising energy prices will lead families and businesses to cut back on spending on other items, with higher prices overall meaning spending won’t go as far. This leads to a significantly weaker economic outlook – hence the Bank expecting a recession in the fourth quarter of this year. pic.twitter.com/5DfOS77jKN

— Resolution Foundation (@resfoundation) August 4, 2022

Leslie and Black-smith says there is no quick fix to rising energy costs. The next Prime Minister must therefore do more to protect families from the worst effects of the crisis, focusing on low-to-middle income households.

All of this lays bare the challenges for the next prime minister: although they may dream of a honeymoon period, the reality is that the worsening economic crisis will be at the top of their to-do list – and in particular providing weak-focused support to middle-income households – when they enter 10 Downing Street on September 5.

Also coming today

The latest US jobs report is due later, showing the health of the US jobs market as its economy slows. Economists predict job creation slowed in July to 250,000 from 372,000 in June.

Agenda

  • 7am BST: Halifax house price index for July
  • 1.30pm BST: US jobs report for July




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