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Grim’s short economy in the UK Britain of England on Thursday caused fresh concern for the efforts of the Government to raise growth, because the prognosis of the central bank is less activity, greater inflation, growing unemployment and a sharp deterioration of the British output potential.
The Bohemian Monet Policy Committee reduce interest rates By a quarter percentage point of up to 4.5 percent compared to the background of stagnated production and growing trade tensions, with two rates of rates favoring an even greater reduction to protect against the risk of sharp downs.
The weak look emphasizes the challenge that Chancellor Rachel Reeves faces after being advocated that Government mission is number one. He raised fresh questions about fiscal prospects, analysts said, given the importance of stronger growth for strengthening tax revenues.
If the Budget Liability Office, the Government Fiscal Guardian, should have issued similar prospects for growth growth, it would increase the risk of the chancellor to violate its self -existent fiscal rules, said Paul Dales of the Economy of Capital. The weaker prospects for growth meant “the government will have to tighten their fiscal belt.”
In the second blow to the Government’s attempts to send an optimistic message to economyThe short-term BOE forecasts indicate acceleration of inflation to 3.7 percent by mid-2025-to-grade above the goal of Boe 2 percent.
Even if interest rates remain greater than recent market expectations-only two more decreasing quarter points by the end of 2027-the prognosis show that inflation to return to BOE would only be 2 percent at the end of 2027.
In the meantime, GDP would only grow 0.75 percent this year, before picked up in 2026 and 2027, and unemployment would rise to 4.75 percent.
Andrew Bailey, Boe Governor, he tried to finally finish the prognosis of inflation, saying that a short -term jump is generally a consequence of “temporary factors” that are not directly related to the basic costs and pressures of prices in the economy in the UK. ”
The 20 -pointed growth of gas -priced gas in Europe was the largest driver, he said, along with the planned increase in regulated bus prices and household water accounts. But Bailey also admitted that there was a “increased uncertainty” that could push inflation in any direction.
The biggest concern is that Boe has become pessimistic in terms of a rate that can grow economics without pushing inflation.
In her annual supplies, aside the economy supply, she announced that the potential growth rate of the UK – often described as a “speed limit” from the sustainable GDP growth – slowed to only 0.75 percent by the beginning of 2025, which is less than 1.5 percent one year earlier.
This meant that even with the real GDP growth in the downtime, there was only a small edge of weakness in the UK economy in the UK, which divided the rates divided into the extent that recent slowdown was due to poor demand or limited offer.
Boe’s picture is quite gloomy, said Andrew Wishart, a British economist at Berenberg Bank. “High inflation, despite its poor growth, partly reflects a new judgment that the supply capacity of the economy has weakened, and partly a greater future for energy prices,” he said.
Bailey said “challenges to read some data” made it difficult for MPC to judge what was happening.
Recent data audits have shown the population of the UK And the workforce has grown faster than he thought before, he noted – and since “we have not changed GDP, we can only mathematically conclude that productivity has become much worse.”
Employment growth was the fastest in parts of a public sector such as education and health, whose contribution to GDP is difficult to measure.
All this meant “a speed limit [on growth] It is lower in the short term, ”said Dave Ramsden, Deputy Governor Boe. However, he added that there was “a good reason to think that productivity would be picked up” in the long run, as government structural reforms began to pay off.
Boe predicts improvement of potential growth over the coming years as productivity is growing, but the prospect of GDP remain blurry.
Bailey said there is a risk that increasing the budget tax can increase the prices and hit jobs more than Boe initially thought, because employers in some sectors could not reduce the salary for the staff but at the minimum wage.
In the meantime, companies spoke to BOE agents that employment and investment were retained due to concern for trade tensions, high costs of borrowing and a respected monetary position, as well as budgets.
Bailey said MPC “would have to judge meetings by meeting” how far and how quickly it can reduce rates because of these insecurities. Analysts said the development on the supply side would ultimately be crucial.
“We do not want to see what Boe thinks happened at the supply of 2024 repeated in the next five years,” Rob Wood said, in advisory pantheon macroeconomics. “If the growth of productivity is so weak, and the prospect of life standards and in a fiscal prospect [are] It will be terrible. “
