The Bank of England has warned that the health of the global economy has “deteriorated materially”, and warned of hard months ahead for households and businesses.
Governor of the Bank of England, Andrew Bailey said, “Global financial conditions as a whole have tightened significantly.”
The Bank of England said, “Tighter financial conditions and reduced real incomes will weigh on debt affordability for households, businesses, and governments in many countries, increasing the risks from global debt vulnerabilities.”
British inflation rates hit a high of 9% in June 2022, the highest number since 1982. The Bank expects the worst is yet to come. The number could touch 11% by the end of this year.
This could lead to more interest rate hikes in an attempt to curb inflation. In June 2022, BoE increased the rates form 1% to 1.25%, the highest in 13 years.
Mike Bell, a global market strategist at J.P. Morgan Asset Management, warned: “There is the risk that without further rate rises a wage price spiral could develop. The Bank of England are therefore stuck between a rock and a hard place.”
Globally, central banks have been raising interest rates to tap inflation. The U.S. Federal Reserve also increased the rates from 1.5% to 1.75%, which was the highest one-time increase since 1994.
BoE has also advised British banks to keep more money aside to withstand potential future shocks, but feels that UK banks are well-positioned to withstand the storm.
