Bank of England revises UK economic growth forecasts downwards
The Bank of England lowers UK economic growth forecasts and predicts a prolonged period for inflation to reach its 2% target
The Bank of England revised its forecasts for UK economic growth on Thursday, indicating that it would take more time than anticipated for inflation to return to its target of 2%. According to the latest projections, the central bank predicts that gross domestic product remained stagnant in the July-to-September quarter and is expected to only grow by 0.1% in the current quarter, which is more pessimistic compared to its previous estimates in August.
Despite the economic downturn, it is expected that inflation will reach its target by the end of 2025, which is approximately six months later than the previous forecast. The Bank of England has decided to maintain interest rates at the same level for the second consecutive time due to evidence indicating a weakening economy and a decrease in inflation.
The main borrowing cost for commercial banks in the United Kingdom remains at 5.25%, as the decision has been made to continue withholding from raising the interest rate. This decision comes after a pause in September, which followed 14 consecutive rate hikes. This interest rate level is the highest it has been since February 2008.
In addition, the Federal Reserve has also maintained its rates on Wednesday, and the European Central Bank has recently decided to pause its rate-hiking campaign after 15 months.
The three central banks have indicated a continuation of the economic slowdown due to increased borrowing costs negatively impacting demand.
In September, consumer prices in the UK rose by 6.7% compared to the previous year, maintaining the same rate as August when inflation unexpectedly decreased. The Office for National Statistics reported that food prices experienced their first monthly decline in two years in September. However, energy prices fell at a slower pace compared to August.
Core inflation, excluding the unpredictable expenses of food and energy, decreased to 6.1% in September after reaching 6.2% during August.
In contrast, the gross domestic product experienced a growth of 0.2% in August compared to the preceding month, rebounding from a decline of 0.6% in July.
"Ruth Gregory, deputy chief UK economist at Capital Economics, noted last month that although the economy is not currently in a recession, it lacks significant underlying momentum. Furthermore, she stated that the impact of higher interest rates will continue to worsen. According to the consultancy, the UK is predicted to enter a recession later this year, with a decline in GDP expected in the third and fourth quarters. Please note that this is an ongoing story and updates will be provided."
