Rachel Reeves faces challenges as the Bank of England downgraded its growth forecast for the UK, now predicting only 0.75% growth this year. This downgrade, attributed to fragile business and consumer sentiment, coincides with rising inflation that puts additional strain on living standards. The Bank's cut in interest rates to 4.5% reflects its concerns over potential stagflation—a scenario characterized by weak growth coupled with high inflation. Business leaders cite Reeves's national insurance hike as a contributing factor to declining confidence, raising fears about the economic outlook amid global trade tensions.
...the central bank's heightened concern was underscored by a steep downgrade in its 2025 growth forecasts, now expecting just 0.75% growth this year.
Some analysts suggested the Bank's forecasts showed the UK sliding towards stagflation, a toxic combination of weak growth and high inflation which is hard for policymakers to manage.
The risks of stagflation are stark. Inflation remains above the Bank's 2% target and price pressures are piling up, yet the economy is stagnating.
Business leaders have blamed the sharp fall in confidence on Reeves's decision to increase national insurance contributions by 25bn from April.
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