In a significant policy shift, the Bank of England (BOE) has indicated on Thursday that the looming threat of a recession in the UK has become a higher priority than inflation. This development follows nearly two years of consistent interest-rate hikes aimed at curbing the nation's highest inflation rates among the Group of Seven nations.
The BOE's decision to halt further rate increases is based on recent economic data suggesting an economic slowdown. The data indicates that over 5 percentage points of rate hikes since 2021 have been successful in easing inflationary pressures. In an unusual move, the BOE also considered unpublished purchasing managers' index data set for release on Friday.
Bank Governor, Andrew Bailey, has previously stressed the need to control escalating price increases. However, there is mounting concern among officials that the UK's recovery from the pandemic-induced economic downturn may be faltering.
Senior economist at Berenberg, Kallum Pickering, acknowledged the possibility of a "technical recession" during winter but ruled out a severe recession. He noted that various indicators suggest that monetary policy is impacting economic activity.
The pause or cessation of interest rate hikes is likely to bring relief to Prime Minister Rishi Suank's government. The administration has made combating inflation a cornerstone of its policy agenda. The increased rates have led to higher mortgage costs, causing financial strain for consumers barely a year ahead of the forthcoming election.
Chancellor of the Exchequer Jeremy Hunt expressed optimism about this development. He stated that it bodes well for families and businesses alike. Hunt also emphasized that despite inevitable fluctuations, this move signifies progress in their ongoing battle against inflation.
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