UK reports have quoted UK economists as believing that the Bank of England may have to push the UK economy into recession in order to get inflation under control, as it prioritizes inflation control in its policy and at its target rate.
A report in Britain’s ‘The Guardian’ newspaper highlighted the criticism Chancellor of the Exchequer Jeremy Hunt faced after his recent defense of economic and fiscal policies, when he said he thought that it was a price to pay, despite the pain it was already causing families due to the continuing cost of living. At the same time, the newspaper quoted the statements of a number of politicians and economists on the specter of recession threatening the economy as a result: Labor leader Keir Starmer said: ‘No one feels better after 13 years of this government…I’m really concerned about mortgages…People are struggling to pay their bills…Mortgages are one of them big party.” Director of the National Institute for Economic and Social Research Jagjit Chadha If interest rates continue to rise “we risk falling into recession”. Deputy Leader of the Liberal Democrats Daisy Cooper: ‘Government’s failure to bring inflation down is pushing mortgage rates higher as Tory economic chaos continues.’
In a statement to ‘Sky News Arabia Economy’, Elizabeth Carter, an academic specializing in European affairs, assistant professor at the University of New Hampshire, said there are widespread fears in Britain about some sort of economic recession. similar to the 2008 scenario during the global financial crisis.
However, there are fundamental differences between the recession of 2008 and the specter of a possible recession in the next stage, based on the fact that the recession of 2008 came after more than 60 quarters of growth, while Britain is suffering currently stagnant wages and low growth rates. under which the UK economy languishes, and at a time when Britons are facing crises with the rising cost of living.
The soft trap
For his part, Tariq Al-Rifai, CEO of the Corum Center for Strategic Studies in London, said in exclusive statements to “Sky News Arabia Economy” that Germany had finally fallen into the trap of stagnation, “and I see that Britain will follow in this direction”, noting that “the growth The economy of the United Kingdom is weak (0.1% in the first quarter of this year 2023) and follows this trend.
Al-Rifai identifies the most important major factors that reinforce these estimates related to expectations of the UK economic recession, as follows: Conditions faced by the UK economy as a whole, with rising interest rates. There is a slowdown in the commercial and investment real estate sector as well as in the residential sector. due to rising interest. The UK economy and banking sector is dependent on the property sector more than other European countries, and together with the weakness of the sector, this leads to a low rate of economic growth, as well as in conjunction with other economic factors. Challenges putting pressure on trade between Britain and European Union countries, in light of the lack of a trade deal between them so far (following Britain’s exit of the Union).
To these factors, the CEO of the Corum Center for Strategic Studies in London adds the contraction of the industrial sector in Great Britain (in the wake of the contraction of the sector in Germany as well), noting at the same time that the service sector, although whether growing, follows the industrial sector after months. . These are all factors that are plunging the British economy into recession.
And as financial markets increased the UK government’s borrowing costs to the highest level since Liz Terrace’s presidency, the Prime Minister’s ability to deliver on his promise to halve inflation this year, one of five central commitments of his term as Prime Minister, has been “in question”. .
The priority of controlling inflation
For his part, Anwar Al-Qassem, an economist at the British newspaper “Financial Times”, declared, in exclusive statements to “Economy Sky News Arabia”, that “it is quite clear that the Bank of England is giving the priority to the fight against inflation and rising prices”, emphasizing that “inflation is the most worrying thing”. The British government, as British Finance Minister Jeremy Hunt, even if it means causing a recession.
At the same time, he says that the International Monetary Fund expected Britain to enter a phase of double deflation with economic recession, due to high inflation rates, but there has been a recent breakthrough which gives the British Reserve Bank some leeway, in terms of adjusting expectations and eliminating the specter of recession this year. Earlier this month the IMF announced that it no longer expects the UK economy to fall into recession this year, as it updated forecasts published last month, but warned that the prospects remained dim. The Fund expected UK GDP to rise 0.4% this year, after it had expected it to contract 0.3% in its previous April forecast. The improvement in expectations was supported by the unexpected resilience of demand, in addition to faster-than-usual wage growth, higher government spending and improved business confidence, according to the bottom. It has also helped improve expectations, reduce energy costs and improve conditions for global supply chains.
Despite improving expectations and its growth direction, with some improving data in recent months, it is “still weak”, according to the fund.
In turn, Al-Qasim draws attention to the fears of borrowers and buyers of real estate that interest rates will continue to rise, after interest rates have been raised 12 times, and this should not not be the end, as can be seen from the statements of the British finance minister.
The latest data from Britain’s Office for National Statistics showed annual consumer price inflation in the country slowed at the fastest rate in nearly 30 years, to 8.7% in April from 10.1 % in March, and it is also the first time that inflation has fallen to single digits since last August.
Poor performance
The economist of the British newspaper “Financial Times” comments in his interview with the site “Sky News Arabia”, saying: “The performance of the British economy was very bad, while there is now some improvement, and expectations point to inflation falling to 6% by the end of the year, when the government expected it to fall to 2.5 or 3%, but my hopes seem impossible in many such circumstances.
But he does not believe that reasonably low inflation rates are a magic bullet for the economy, which is still suffering greatly from rising prices, adding: “The danger also lies in the fact that house prices froze and sales declined. in Britain, as well as bank borrowers who are suffering badly, especially with interest rates set to climb to 5.5%, the highest rate in decades.
Markets believe the Bank of England could raise interest rates to 5.5% by the end of the year, which has dampened bond prices and pushed up the cost of government borrowing.
As a result, and despite the positive factors associated with government policy and the Central Bank of England, Al-Qasim hints that it could also lead to an expected recession with which Britain will suffer for a long time that could take next year 2024 and maybe beyond. , especially in light of rising energy prices and the continuing war in Ukraine, as well as significant losses (up to 15% of national product) resulting from leaving the European Union.
Former International Monetary Fund deputy director Mohamed El-Erian said the Bank of England should raise interest rates for a longer period, which he said would mean stagnation or near-bottom growth. zero.
Bond market turmoil
Additionally, Britain’s ‘The Telegraph’ newspaper quoted Abrn Group’s asset manager Luke Hickmore as expecting him in radio statements that Britain will experience a recession by the end of this year or early next year in the wake of the bond market. turmoil, despite previous expectations a few days ago for the IMF. On the fact that the UK economy will not face recession this year. Hickmore said: We could see inflation stay higher for longer and the Bank of England will raise interest rates more than they are now. This will in turn lead to higher mortgage costs, which will put people’s incomes “under severe pressure”. With rising interest rates, the mortgage rate crisis and soaring inflation, it will be increasingly difficult to avoid a recession. I don’t think it’s going to be a really tough recession, but we will feel it, and people’s incomes will be under a lot of pressure due to higher mortgage rates.
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