Original title: Epidemic continues to disrupt the bleak outlook for the UK economy
The Bank of England will announce its latest monetary policy decision on the 16th. It was originally expected that the Bank of England (the Bank of England) would raise interest rates for the first time since the new crown pneumonia epidemic. However, the recent spread of the mutated strain of the new crown virus Omi Kiron strain is severe, posing downside risks to economic growth prospects and increasing the Bank of England. The information path is disturbed.
Economic growth faces downside risks
Currently, the Bank of England maintains interest rates at a historical low of 0.1%. As energy and food prices have pushed up inflation in the UK to a 10-year high, many analysts originally expected the Bank of England to raise interest rates to help curb inflation.
However, the recent Ome Keron epidemic situation is severe. The British government has once again implemented stricter epidemic prevention and blockade measures, and economic growth prospects are threatened.
The International Monetary Fund (IMF) warned on the 14th that the new variant of the new crown virus is bringing downside risks to the UK’s economic growth prospects.
The economic recovery in the UK was already showing signs of weakness before the emergence of the Ome Keron epidemic. The economy grew by only 0.1% in October, which was significantly slower than the 0.6% increase in September.
Ruth Gregory, an analyst at Capital Economics, an economic consulting firm, said that the recent anti-epidemic measures implemented by the British government indicate that the British economy is likely to shrink. If the pressure on the medical system increases, this will mean that epidemic prevention measures may be tightened, and economic growth in the first quarter of next year will face downside risks. In this context, it is expected that the Bank of England will not rush to initiate interest rate hikes.
Although the government’s salary support plan expired on September 30, the latest UK employment market data is still relatively optimistic. According to data released by the National Bureau of Statistics on the 14th, the number of new jobs in November reached a record 257,000, and the working population reached a record 29.40 million. At the same time, in the three months ending in October, the unemployment rate dropped to 4.2%.
Officials from the Bank of England have previously hinted that, given the latest high level of inflation, if the labor market continues to perform well after the expiration of the salary support plan, it will be ready to start raising interest rates.
Capital Economics analyst Paul Dale said that although the labor market will be less affected after the expiration of the salary support plan, concerns about the worsening of the epidemic will prevent the Bank of England from raising interest rates in December.
Martin Baker, an economic adviser to the Ernst & Young Statistics Club, said that if there is no interference from the Ome Keron epidemic, the strong employment data released on the 14th will be enough to support the Bank of England to start raising interest rates in December, but the uncertainty brought about by the epidemic shows The central bank will not rush to take action. Baker said that the Ome Keron epidemic is causing the prices of crude oil and other commodities to fall, which may ease global inflationary pressures.
JPMorgan Chase said that with the emergence of the Omi Keron strain, uncertainty about the timing of the Bank of England’s interest rate hike has increased, and it is likely that it will be postponed to February next year.
Some analysts also believe that the impact of Omi Keron may be limited, and the Bank of England may still start raising interest rates in the near future.
Deutsche Bank analyst Sanjay Raja said that the Omi Keron epidemic has little effect on the medium-term prospects of the economy and expects the Bank of England to raise interest rates to 0.25%.
Inflation levels may continue to rise
Britain’s inflation level reached 4.2% in October, far exceeding the 2% target set by the Central Bank. Some Bank of England officials predict that the inflation level may further rise to 5% in May next year.
The Bank of England’s deputy governor for monetary policy, Ben Broadbent, said last week that inflation could “easily” soar to 5% next spring when the UK energy regulator raises the price ceiling that affects millions of households. above. Broadbent also said that an increasingly tight labor market may also become a factor driving up inflation.
However, Broadbent also said that the recent surge in commodity (especially automobiles) prices may subside and, in some cases, will reverse before the impact of the central bank’s interest rate hike. He said: “Looking forward to the next few years, these pressures on commodity prices are more likely to subside rather than intensify.” However, he said that Omi Kiron strain may interrupt this process, depending on the effectiveness and effectiveness of existing vaccines. The severity of its health effects is uncertain.
A public survey released by the Bank of England on the 10th showed that the British public’s inflation expectations for the next year have risen from 2.7% in August to 3.2%, and long-term inflation expectations in five years have also risen slightly from 3% in August. To 3.1%. The survey also revealed that the public is increasingly dissatisfied with the Bank of England’s price control. When answering whether they were satisfied or dissatisfied with the Bank of England’s “efforts to set interest rates to control inflation”, the proportion of people who answered “unsatisfied” rose from 15% to 19%; only 33% answered “satisfied”, yes The lowest level since the survey began in 1999.
Philip Rush, the founder of the consulting firm Heteronomics, said that the public’s inflation expectations have risen so quickly that it is worrying. Although he expects inflation to fall to a manageable level next year, there is greater uncertainty. He said: “The development of financial market prices is even more worrying, because the upward trend in inflation expectations has now exceeded the normal before the new crown epidemic.”
The International Monetary Fund issued a warning on the UK’s inflation outlook on the 14th, saying that the risks in the next period are extremely high, and urged the British government to prepare to deal with the new lockdown measures that the economy faces due to the spread of more dangerous strains, including the restart of salary support. plan.
COVID-19 pressures employment prospects
With the increase in the number of people infected with the Omi Keron strain, the UK continued to tighten its anti-epidemic policy this week. According to the Associated Press, the House of Commons voted on the 14th to continue to tighten epidemic prevention measures to curb the spread of Omi Keron strain. These measures are scheduled to take effect this week, including requiring people to wear masks in most indoor places, changes to self-quarantine rules, and providing COVID-19 passes (vaccinations or negative nucleic acid tests) when entering crowded places.
Although the latest job market data is more optimistic, some analysts worry that the Omi Keron epidemic will reduce labor demand and threaten the prospects of the job market. Once the virus accelerates and people’s travel decreases, the sales of entertainment and catering industries are expected to be most affected.
In response to the impact of the epidemic on the labor market, the British government previously launched a large-scale salary support program to provide salaries for 80% of employees who cannot return to work due to the epidemic prevention and lockdown measures. At most, it has supported 11 million employees. However, as the epidemic eased and many employees returned to work, only 1 million people received support when the salary support program ended at the end of September.
Nai Cominetti, an analyst at the Resolution Foundation, a British think tank, said that after a brief return to normal, with the spread of the Omi Keron strain, the labor market has entered a new difficult stage and may require new policy support. .
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