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Friday, February 14, 2025

Reshaping Perspectives and Catalyzing Diplomatic Evolution

Why is UK inflation bucking the global trend?

Since last year, the US Federal Reserve has raised the interest rate 10 times, to between 5 and 5.25%, the highest level since August 2007, which has led to a drop in the interest rate. annual inflation in the United States at 5% last March, after reaching mid-2022, it has reached its highest level in about 4 decades, exceeding 9%, but it is still far from the central American objective of 2 %.

As for the European Central Bank, it has raised the interest rate 7 times since last year, with the aim of controlling inflation to reach the level of 3.75%, so that inflation in the countries Eurozone readings have slowed sharply from late double-digit readings. last year, as data from the European Union Statistical Office “Eurostat” showed, this inflation reached 7% last April, but it is also still far from the 2% target of the European Central.

In its latest statement, the ECB kept its interest rate options open as its fight against inflation continues, but did not mention the need for further increases.

While the Bank of England was one of the first major central banks to raise interest rates to control rising prices, as it has done eleven times since December 2021, the last of which last March from 25 basis points, to reach 4.25%, which is the highest since the global financial crisis of 2008. But so far, the Bank has failed to control the pace of inflation, which is still higher at 10% and the highest in Western Europe.

Interest in Europe and America bears fruit

Clash Knut, President of the Central Bank of the Netherlands and member of the Governing Council of the European Central Bank, said in statements last Sunday: “Interest rate hikes implemented by the European Central Bank are starting to bear fruit, but more will be needed to contain inflation”, while the Federal Reserve announced in its recent statement that “activities The country’s economy grew at a moderate pace during the first quarter of this year.” He also did not indicate the need to continue raising interest rates, which means that it could open the door to stopping the process of raising interest rates.

The Bank of England’s measures were less stringent than those of the US Federal Reserve and the European Central Bank

In turn, Dr. Mamdouh Salameh, a global economist and oil expert residing in Britain, said in his interview with “Sky News Arabia Economy”: “Inflation in the UK started as high as in the United States. States of America and in the European Union, but the measures taken by the Bank of England were much less strict than the Federal Reserve Bank.” The United States or the European Central Bank, because the British economy was in a much worse state than the EU or the US.”

An excessive increase in interest rates by the Bank of England would have contracted the British economy far more than it would have worsened the cost of living and pushed the economy further into recession and made losses, according to the Dr Salama.

Dr Salama explains that the Bank of England may soon stop raising interest rates in the hope that inflation will start to fall of its own accord.

In response to a question about whether oil is still affecting Britain’s inflation rate despite its low price, Dr Salama said: ‘The fact that oil prices have fallen recently and that may help reduce inflation rates in the UK, but once fears of a banking crisis or a global financial crisis wane, oil will make up for its losses and resume its ascent.

Password.. matters

In his interview with “Sky News Arabia Economy”, Ashraf Al-Aidi, CEO of the company “Intermarket Strategy” residing in Great Britain, attributes the influence of Great Britain on inflation more than the United States of America and the eurozone countries to the fact that Britain’s dependence At the same time, the Bank of England is unlikely to resort to continued monetary tightening after the US Federal Reserve and Central Bank European Union will have stopped tightening their monetary policy.

Al-Aidi adds: “The Brexit decision remains a factor that cannot be ignored playing a role in reducing the growth of the British economy and increasing wages and inflation after the departure of thousands of European workers who played an important role in reducing wages.”

Symptoms of severe economic hardship

For his part, economist and financial expert Ali Hamoudi told Sky News Arabia: “Britain finds itself in an unenviable position as the only major developed economy that still has an inflation rate of over 10 %, and it is a fact that represents a symptom of severe economic distress that Britain’s annual consumer price inflation rate fell to 10.1% last month from 10.4% .

The figures highlight the risk that Britain will be exposed to high inflation for longer than other similar economies due to its dependence on natural gas for heating and electricity and the structure of government subsidies for its citizens in order to smooth out sharp price swings, according to Hamoudi.

Great energy shock and labor shortage

Hamoudi explains that the Bank of England is concerned that high inflation will cause a permanent increase in wage demands and corporate pricing strategies, exacerbated by a post-pandemic drop in the workforce and trade and labor problems. labor market caused by Brexit, pointing out that the Kingdom’s inflation rate The United States rose more and remained higher than anywhere else as the Kingdom saw the worst of America and Europe, an energy shock as large as the euro zone and labor shortages as in the United States.

According to economist and banker Hamoudi, high rates of early retirement, long-term illness and immigration trends have also depleted the pool of workers, meaning the recovery of the UK labor market from the pandemic is lagging behind its counterparts in the international economy. who confirmed that the Bank of England is not yet done with raising interest rates and will not do so unless he sees a significant drop in inflation figures to at least 6 or 5 %.

Brexit is the main culprit

The CEO of the “Quorum Center for Strategic Studies” in London, Tariq Al-Rifai, attributed the main reason for the high inflation in Britain compared to the United States of America and European Union countries to the effects of Britain’s exit from the European Union. .

In his explanation of the repercussions of this on the UK economy, Al-Rifai points out in statements to the Sky News Arabia Economy website, “With the global economy emerging from the Corona pandemic crisis, we have seen historically high inflation rates in many countries around the world, including Britain, European countries and America, and we have been following the reaction of central banks trying to control these high rates by raising rates interest rates, including the banks of America, Britain and Europe, which were late in this stage, which led to rapid increases in inflation in these countries.

Al-Rifai adds: “However, the history of Britain, with an inflation rate that remains high, unlike America and European countries in which the inflation rate has slowed, goes back to the economic problems following Britain’s exit from the European Union, including, for example, the issue of visa delays for drivers from Europe to Britain due to differences between them, which delayed arrival of goods to Britain, and Britain is trying to get a trade deal with the European Union, but it hasn’t been successful because that step has been postponed by the European Union, and all of that has caused the presence high inflation rates in Britain.

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Arab Desk
Arab Desk
The Eastern Herald’s Arab Desk validates the stories published under this byline. That includes editorials, news stories, letters to the editor, and multimedia features on easternherald.com.

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