UK Economy Under Threat
The Bank of England gave a hawkish outlook, against market expectations. It’s unlikely that interest rates will be cut as much as expected.
The BoE predicts tighter credit conditions, slowing investment and reduced consumer demand for the UK. This could lead to a slow-down that is far worse than originally thought back in November.
It looks likely that rising food, energy and fuel bills will send inflation above targets in the short term. The BoE is meant to achieve consumer price inflation of around 2 percent in the medium term. The BoE believe that if interest rates stay at 5.25 percent, inflation would fall below target in two years.
If the interest rate is cut to 4.5 percent by the end of 2008, as the market expects, the BoE predicts inflation above target, reaching 3 percent.
BoE Governor said “It is important to remember what monetary policy can and cannot achieve. The monetary policy committee cannot deliver a completely steady path for output growth… it is the outlook for inflation in the medium term on which the MPC remains focused.” - FT.com
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