On first glance the UK’s price of living woes might appear mild in comparison to other nations. The rate of inflation was 10.7 percent in the month of November 2022. It compared to 12.6 percent in Italy as well as 16. Percent in Poland and more than 20 percent within Hungary in Hungary and Estonia. However, it expected that the Bank of England expects a recession to hit the UK this year. Possibly lasting until the middle of 2024.
This is due to the high proportion of UK households without nations protection. Against financial hardships is unusually high for a country with a thriving economy. A pre-pandemic study revealed there were 3 million in the UK could be in poverty. When they failed to pay one check, with the nation’s cost of housing as a major cause of risk. A recent study suggested the possibility that one third of UK adults would be struggling. With the cost of living if they increased their spending by only PS20 every month.
The pandemic saw nearly 4 million families take on additional debt. With nearly all of them falling behind in paying it back. Recent increases in food and energy bills can push some to the brink. Particularly when heating costs are high as the current price cap for energy comes to an end in April.
UK government has been slyly increasing taxes since 2010. And as a result, in terms of real (adjusting to inflation) average UK household. Incomes were less than 2% in 2018 compared to 2007. However, real incomes have diminished further over the last year. As the country’s 10.7 percent inflation rate (as as of November) is much higher than the wage. Increases that many workers have had to accept during the last few months.
Government To Make Nations Decisions
However, recent circumstances have led the government to make decisions that are not compatible with the impending recession. On September 20, 2022 Liz Truss became prime minister, making bold promises to end the country’s economic woes. The world’s financial markets responded in a dramatic way to her tax-cutting plans by increasing the amount of rates. They make to the UK business and government to take out loans. This forced newly appointed chief of staff Jeremy Hunt to embark on another round. Of spending reductions and tax hikes in November. These actions are ones that typically reserved only for the peak of booms, not the moment of peaking.
The Bank of England is also not doing what central banks usually do in the event of a recession. The high inflation rate forced the Bank of England to increase interest rates to 3.5 percent in December. More increases expected in 2023. This will increase the debt repayments of the millions of people who borrowed money to finance their home purchases. And for those who have credit cards that not secured and overdraft loans.
These additional expenses reduce the household’s disposable income. Because households account for about 60% of expenditure within the UK economy. This could undoubtedly lead to recession that could end up being very lengthy and painful linkaktifgelora.com.
US Central Bank Sends Signals Of Nations Caution
The rate of inflation grew significantly in the US in the latter half of 2021 and into 2022. And reached levels that were more than any before in the last 40 years. In response, the Federal Reserve responded by aggressively increasing it’s standard rate. The federal funds rate seven times over the course of March to stabilize prices. A few smaller rates scheduled for 2023.
It estimated that the US index of consumer prices, a traditional indicator of nations inflation. Shows that prices reached their peak in June 2022, rising by 9.1 percent over the prior year. The index has declined each month since June with the data for November. The most recent available data shows that US prices have dropped by 7.1 percent over the preceding twelve months.
The fed funds rate acts as a reference point for other interest rates for example, mortgage rates. The recent rises have started to lower the demand for goods and services as well as investment. As an example, homes sold for November were 7.7 percent lower. Than October and fell by nearly one third from a year ago. The main reason is that mortgage rates have nearly tripled to more than after reaching 7percent in October. After a low of 3% at the first quarter of 2021.
Negative Ripples
The negative ripples of the drop in the demand for housing will remain to slow economic growth for the next few months due to the fact that some of the effects of monetary policy happen with some time.
The Fed has now announced that it will keep raising interest rates until 2023 before stopping, an approach that is supported by a myriad of economic indicators. The reason for this is due to the continued growth in the labor market with low unemployment and wages that aren’t adjusted to reflect inflation are continuing to increase, and around 10 million open jobs according to the most recent information. In the event that businesses need to increase prices to attract or retain employees, this could cause rising prices and a persistent increase in inflation.
This is particularly important because of the ageing of the population of America. This is due to the aging of population in US and the impact this has on labor market. However the recent drop in prices for energy is likely to last, and future reductions in inflation would require a reduction in other areas like food and shelter.