Skip to main content

IMF warns BoE

  The International Monetary Fund has told the Bank of England that it cannot wait much longer to raise interest rates as it warned that inflation could hit a 30-year high next year.

The fund said it would be “important to avoid inaction bias, given costs associated with containing second-round impacts”, referring to the danger that rising prices become ingrained in consumers’ expectations, leading to a further rise in the inflation rate. 

The IMF stopped short of calling for immediate action but said that monetary policy would remain “accommodative” even after the Bank takes the “initial steps” in tightening. 

In its annual report on the British economy, the fund said the UK had staged a stronger than expected recovery from the pandemic but cautioned that the Omicron variant could trigger a “mild slowdown”. 

In a veiled rebuke to UK rate-setters, the IMF accused the monetary policy committee of looking for reasons not to tighten policy because of an apparent “inaction bias”. 

The IMF said that the Bank of England’s monetary policy committee “needs to withdraw the exceptional support provided during 2020-21”, the IMF said. 

The surge in consumer prices has become acute, with inflation rising to a ten-year high of 4.2 per cent in October — more than twice the official 2 per cent target. 

The Washington-based institution, which has 190 member countries, said the steep rise in the cost of living was at risk of becoming entrenched, with inflation set to peak at 5.5 per cent — levels that have not been seen since the early 1990s. 

The IMF expects the UK economy to expand by 6.8 per cent this year and 5 per cent next — in line with a forecast from October. 

Yet, the Bank is expected to keep interest rates at the historic low of 0.1 per cent this week because of uncertainty over how the new Covid-19 variant will affect the nation’s health and economy. 

If the government orders other lockdowns, ministers should waste no time in reinstating a range of support measures, including a new furlough programme and extra assistance for the poorest households, the IMF said. 

Kristalina Georgieva, the IMF’s managing director, argued that the UK had the “fiscal space” to extend support to businesses and workers if needed. 

Summarised www.sba.tax
Labels:

Comments

Post a Comment

Cloud Bookkeeping

US FED rate rise.

  The US Federal Reserve officials have indicated that they plan to resume increasing interest rates to control inflation in the world's biggest economy. During the June meeting, the Federal Open Market Committee reached a consensus to keep interest rates stable for the time being to evaluate whether further tightening of policy would be necessary. However, the majority of the committee anticipates that additional rate increases will be required in the future. The minutes of the meeting have recently been made public. According to the minutes, most participants believed maintaining the federal funds rate at 5 to 5.25 per cent was appropriate or acceptable, despite some individuals wanting to raise the acceleration due to slow progress in cooling inflation. Although Fed forecasts predicted a mild recession starting later in the year, policymakers faced challenges in interpreting data that showed a tight job market and only slight improvements in inflation. Additionally, officials gr...
Post a Comment
Read more

EU business slide.

  S&P Global’s flash eurozone composite purchasing managers’ index, a key gauge of business conditions for the manufacturing and services sector, fell 1 point to 47.1, figures showed yesterday. That is its lowest level since November 2020 and the fourth consecutive month below the crucial 50 mark separating growth from contraction. One of the few bright spots in the survey was that companies in all sectors reported a slight easing of cost pressures, price growth and supply chain constraints. However, prices charged for goods and services still rose at the sixth fastest rate since such data started in 2002. Jobs growth increased marginally from October but remained low compared with the past 18 months. Following a few months of falling price pressure in manufacturing and services, the October print shows an overall stabilisation said Jens Eisenschmidt, chief European economist at Morgan Stanley. However, German businesses, at the hub of Europe’s energy crisis, reported that manu...
1 comment
Read more

India- UK trade deal.

  According to India's top trade official, talks with the UK regarding a trade agreement are progressing well, despite obstacles related to temporary work visas and the opening up industries like automotive and spirits. The Commerce and Industry Minister, Piyush Goyal, explained that India is seeking transition periods or greater market access in specific sectors due to its economy, which is slightly larger than the UK's and expected to outgrow it in the coming decades. If a trade deal is reached, it would be one of the most significant agreements for Britain since leaving the EU, and it would also be necessary for India, which surpassed the UK as the fifth-largest economy last year. Goyal stated that India aims to increase its economy from $3.5tn to $35tn by 2047, the country's centenary of independence. According to officials and diplomats in India, talks about a proposed trade deal may be finished by early September, just in time for the G20 summit in New Delhi. Nigel Hu...
Post a Comment
Read more