The Bank of England (BoE) has admitted that the UK is officially in recession. Bank Governor Andrew Bailey stated weeks ago that there was nothing the central bank could do to prevent a recession at this point. The Monetary Policy Committee (MPC) voted to raise interest rates by half a percentage point to 2.25%, the highest level since 2008. Markets had been expecting a rise of 75 basis points, but the central bank is moving slowly and aims to avoid panic.
The central bank expects a 0.1% decline in GDP over the next three months after seeing a 0.1% decline in the last quarter. The August CPI report came in at 9.9%, just a slight drop from July’s reading of 10.1%. Winter is coming, and that’s when you’ll feel the full impact of the energy crunch. The Bank of England believes inflation will rise to 11% in October when the energy cap is changed. Like the Fed, the Bank of England is a long way from its 2% inflation target and has relied on quantitative easing for far too long.
Dollar strength continues to cause sterling to fall as the US dollar is considered the last safe haven.