Tackling Effects Of Brexit, And
Defying forecasts made by economists, a hike in prices of essential commodities in Britain put the country under tremendous financial pressure in February 2023. On March 22, the Statistics Office of the British Government confirmed that the rate of price hike increased from 10.1% in January to 10.4% in February. Nearly four months ago, economists predicted that the price hike would not exceed 9.9%. However, the cost of food, fuel, clothing and dining out have pushed the rate up. Therefore, the cost of living is all set to rise in Britain.
When the prices of essential commodities were slightly lower, a section of experts thought that the Bank of England might not increase the interest rate in order to ensure financial growth. Instead, the Central Bank announced an 11th consecutive interest rate increase on March 23 (2023) in an attempt to tackle inflation, despite concerns about the economic fallout from troubles in the global financial system. The Bank of England boosted its key rate by a quarter-percentage point to 4.25% just a day after the US Federal Reserve made a similar move to tame inflation. It issued a statement, saying: “The Bank will continue to closely monitor indications of persistent inflationary pressures. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.” Experts are of the opinion that such a move might not be good for the British Economy, amid the Global Banking Crisis.
As per the report published by the Statistics Office, food prices increased 18% in February compared to the corresponding month in 2022. Also, there was a 27% increase in electricity bills and natural gas prices, in spite of subsidies. All these have increased the overall cost of living in Britain, prompting people to demand a pay hike. However, a proper demand in the market and low interest rates on loans are required to ensure that. Unfortunately, the scenario is completely different in the UK.
According to economists, Britain is still trying hard to tackle the impact of leaving the European Union (EU), as Brexit reduced trade with its neighbours, apart from curtailing the supply of cheap labour and slowing down the economic growth. In such a scenario, both the Bank of England and the Rishi Sunak Government are concentrating on preventing cost pressures from becoming embedded in the economy, driving up wages and further fuelling inflation. Russ Mould, the Research Director at the UK investment platform AJ Bell, stressed: “We have moved from a situation where there was at least a measure of clarity from Central Banks to one where even they must be second-guessing themselves.” He made the comment before the Bank of England announced the rate decision.
It may be noted that Central Banks, across the globe, are struggling to balance competing economic demands by reining in inflation that has already eroded savings and increased costs for consumers and businesses, without unnecessarily damaging economies weakened by the COVID-19 Pandemic and the Russia-Ukraine War.
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