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On Thursday, the inaugural snapshot of the British Bank of England raised new concerns about the government's efforts to raise growth, as the weakest activity of the Central Bank, high inflation, high unemployment and acute degradation in the capabilities of Britain's production.
The Monetary Policy Committee of the Bank of England Reduce interest rates By a quarter of a point to 4.5 percent against a background of certain output and high trade tensions, with two price simulations to reduce more protection from the risk of more severe shrinkage.
Weak expectations emphasize the challenge facing Chancellor Rachel Reeves after she pledged that growth was the first mission of the government. Analysts said it raised new questions about financial expectations, given the importance of stronger growth to support tax revenues.
Paul Dalis of capital economics, if the budget responsibility office, the government's financial financial agency, has issued similar dilapidated growth forecasts, it will increase the risk that the chancellor will break its financial rules that it imposed self. The weakest growth horizons mean “the government will need to tighten its financial belt.”
In another blow to the government's attempts to send an optimistic message on economyIn the short term, Bank of England indicates the acceleration of inflation to 3.7 percent by mid-2025-higher than the goal of England Bank by 2 percent.
Even if interest rates remain higher than the last market expectations-with other points discounts only by the end of 2027-the expectations show that inflation will only return to a bank goal of 2 percent in late 2027.
Meanwhile, gross domestic product will grow only by 0.75 percent this year, before it rises in 2026 and 2027, and unemployment rises to 4.75 percent.
Andrew Billy, Bi The ruler sought a positive situation on inflation expectations, saying that the jump near the duration was mainly due to the “temporary factors” that “were not directly linked to cost pressures and basic prices in the British economy.”
He said that a 20 percent increase in wholesale gas prices throughout Europe was the largest driver, in addition to the planned increases in the prices of organized buses and household water bills. But Billy also admitted the existence of the “increased uncertainty” that could push inflation in any of the two directions.
The biggest concern is that the Bank of England has become more pessimistic about the rate in which the UK's economy can grow without increasing inflation.
On its annual shares of the offer from the economy, she said that the potential growth rate of the United Kingdom – is often described as a “limit for speed” on the growth of sustainable GDP – slowed down to 0.75 percent only by the beginning of 2025, a decrease of 1.5 percent per year the previous.
This means that even with the growth of the actual gross domestic product in a state of complete stopping, there was only a small margin of stagnation in the British economy-with the division of standards in prices over the last slowdown due to poor demand or restricted supply.
Andrew Weshd, an economist at Bernberg, said that the image from the Bank of England is very dark. He said: “High inflation, despite poor growth, partially reflects the new ruling that the ability of the offer to the economy has weakened, and the high energy price contracts in part.”
“The challenges facing reading some data” have made it particularly difficult for MPC to judge what is going on.
Modern data reviews showed UK residents He pointed out that the workforce has grown faster than previously thought – and since “we had no change in GDP, we can only conclude sports that productivity has become much worse.”
The growth in work was faster in parts of the public sector such as education and health, which is difficult to measure its contribution to GDP.
Dave Ramsden, Vice President of the Bank of England, said that all of this means “the maximum speed (on growth) in the short term.” However, he added that there is a “good reason to believe that productivity will pick up” in the long run, as the government's structural reforms began to bear fruit.
The Bank of England expects to improve the potential growth over the coming years with high productivity, but the gross domestic product look is still ambiguous.
Pelly said that there are risks that increasing budget tax could enhance prices and become more than that the Bank of England who initially believed, because employers in some sectors were unable to reduce employees ’salaries already at the minimum wage.
Meanwhile, the companies were telling the banks of the Bank of England that they were stopping employment and investment due to fears of trade tensions, high borrowing costs, compressed cash position, as well as the budget.
Pelly said that MPC “will have to judge the meeting through the meeting” to what extent could reduce prices because of these doubts. Analysts said that the developments on the side of the show will eventually be it is very important.
“We do not want to see what the Bank of England believes in 2024 its repetition over the next five years,” Rob Wood said in the economic consultations. “If productivity growth remains weak, then each of the future will be living levels and also terrible financial expectations.”
