20. Weekly Newsletter
Bank of England Interest Rates
The Bank of England (BoE) has raised interest rates to 4.5% on Thursday (11th May) after warning that the UK will not hit its inflation target (2%) until 2025. UK interest rates are now at their highest level since 2008 after the BoE admitted that it had underestimated the persistence and strength of food price rises. Last month inflation was recorded at 10.1% and the BoE expect that it will halve by the end of the year.
Inflation remains near 41 year-highs with Bank of America warning that Britain has the largest problem with persistent inflation in the developed world. The bank’s UK chief economist stated that “the UK has experienced the greatest acceleration in wage growth and the strongest evidence, in our view, of inflation de-anchoring modestly to the upside”. This analysis came after the BoE’s chief economist outlined his view that inflation has hit a “turning point” for the UK economy and is expected to fall.
Newspapers & EU Votes
The UK’s front page news cycle over the last seven days covered a wide range of topics with no single issue dominating headlines. However, the annual Eurovision competition, hosted in Britain for the first time in 25 years, saw Sweden take home victory. Some of the newspaper front pages over the last week were:
- Daily Mail: Starmer To Use EU Citizens To ‘Rig’ Polls
- The Guardian: Braverman (Home Secretary) rejects Tory calls to ease visa rules
- Financial Times: G7 and EU to heap pressure on Russia with ban on reopening of gas pipelines
- The Sunday Telegraph: Labour to give EU citizens the vote
- The Times: Food prices ‘on way back down’
- The Guardian: UK sends long-range missiles to Ukraine in first for west
- The Independent: Mortgage misery for millions as rates hit 4.5%
- Financial Times: BoE lifts rates and warns inflation target will not be reached until 2025
- Financial Times: Sunak ready to curb students’ family visas as net (migrant) flows grow
The opposition centre-left Labour Party is considering the extension of voting rights to some EU citizens living in the UK if the party wins the next general election (expected in Autumn 2024). The party is developing a package of proposals that would also include votes from 16 and 17-year olds in future general elections. Labour has not confirmed that these policies will feature in their next manifesto but Sir Keir Starmer did campaign for all EU nationals, in the UK, to be provided with full voting rights. This is estimated to include an additional 3m citizens but may only extend to long-term residents.
UK GDP Growth
The UK economy grew 0.1% in Q1 of 2023 following 0.1% growth in the previous quarter. However, March scored an unexpected 0.3% contraction as families reduced spending on services. Chancellor Jeremy Hunt stated that the government is focusing upon “competitive taxes, labour supply and productivity”.
The Bank of England (BoE) on Thursday, 11th May, outlined its forecast for UK economic growth with stagnant growth predicted in Q1 and Q2. However, they anticipate growth in the second half of 2023. By comparison, this represented an upgrade in the previous outlook for a recession lasting five quarters starting in Q1 of 2023. This improvement was attributed to reduced energy prices, stronger global growth and enhanced corporate (and consumer) confidence.