UK recession ‘looking increasingly likely’ as rate of inflation could hit 10 percent
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This comes amid the current cost of living crisis which has seen energy bills skyrocket by £693 a year, with prices set to reach £2,800 a year. At the same time, the Bank of England confirmed last week that the rate of Consumer Price Index (CPI) inflation has reached a 40-year high of nine percent. The Chancellor Rishi Sunak is reported to be announcing a further support package for low income households tomorrow (May 26) in response.
Despite this, financial experts are sounding the alarm that a recession is “likely” due to the ongoing financial pressures resulting from Ukraine and external pressures on wholesale utility markets.
Speaking exclusively to Express.co.uk, Giles Coghlan, a chief analyst at HYCM, outlined the grim financial forecast for the UK going forward.
The financial expert called on the British public to listen to the Bank of England’s concerns over inflation, which look likely to hit ten percent sooner rather than later.
Mr Coghlan said: “Investors and the general public alike would do well to heed warnings from the Bank of England’s Andrew Bailey about runaway inflation forecasts and ‘apocalyptic’ global food prices, which have been pushed up by the conflict in Ukraine.
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“At the beginning of the year, the central bank expressed its will to walk a very tight line between tackling inflation and avoiding a recession.
“Now we are seeing the Bank of England hardening its stance, with the word ‘modest’ notably absent from its last announcement and the prospect of a recession looking increasingly likely.
“Crucially, the Bank of England expects inflation to peak at 10 percent this year, and they project that the UK will enjoy negative growth in 2023.”
Looking into the future, Mr Coghlan believes further interest rates could be introduced to mitigate the impact of inflation on savers and those looking to boost their finances.
He added: “Going forward, the Bank of England’s plans to tackle inflation are more ambiguous.
“While the current consensus amongst Monetary Policy Committee members indicate that further hikes are inevitable in the immediate future, with markets pricing in a 100 percent chance of a 25 basis point rate hike for June’s BoE meeting, the future looks more uncertain.
“Chances are, the Bank of England will hike rates once or twice more this year to control inflation unless growth is jeopardised, at which point it will likely press pause on rate hikes.
“As higher rates place downwards pressure on growth and U.K. households continue to grapple with significant cost burdens, make no mistake, the Bank of England faces some very difficult tests in the months to come.”
However, Mr Coghlan believes it is likely the financial institution could begin to cut rates if growth turns negative next year.
Despite this negative assessment, he also noted last week’s UK employment data presented “some encouraging signs” as UK average earnings grow by seven percent
“This will go some way in offsetting the inflation that the UK has experienced,” Mr Coghlan said.
The Bank of England’s Monetary Policy Committee will next confirm changes to inflation on June 22, 2022.
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