UK: Avoiding economic recession, Bank of England continues to raise interest rates
2023-04-05
■Real GDP (fixed value) increased by 0.1% compared to the previous quarter, avoiding two consecutive quarters of negative growth
■The Bank of England will continue to raise interest rates after May, and the policy rate may be raised to 4.50%
On March 31st, the Office for National Statistics (ONS) released real GDP data for the fourth quarter of last year (confirmed data), showing a month-on-month growth of 0.1%, a decrease of 0.1% compared to the previous quarter, achieving two consecutive quarters of negative growth. Personal consumption accounts for 60% of GDP, maintaining an upward trend. The "Energy Bill Support Scheme" launched by the government to cope with rising energy prices has had an impact on businesses and households, helping to avoid two consecutive quarters of negative growth. Real disposable income was also affected by EBSS, with a month-on-month increase of 1.3%, turning positive for the first time and reaching the highest level in five quarters. However, the actual GDP is still 0.6% lower than the level before the outbreak of the COVID-19 epidemic (the fourth quarter of 2019). The slow degree of economic recovery in the UK is particularly prominent among the major G7 countries.
The Bank of England (BOE) raised the policy rate to 4.25% at the Financial Policy Committee (MPC) meeting on March 23rd. Among the core consumer price index (CPI) focused by the Bank of England, the index excluding energy, food, alcohol and tobacco increased by 6.2% year-on-year, while the short-term financial market is expected to raise the interest rate by 0.25% again at the meeting on May 11, and the final arrival point (terminal interest rate) of the policy interest rate may reach 4.50-4.75%. At the same time, there is almost no expectation of interest rate cuts this year, and the Pound is gradually appreciating in the foreign exchange market. Since December last year, the Poundhas been aware of the trend of $1.25 against the US dollar three times. The GBP/JPY exchange rate is observing whether to lift the ongoing market consolidation since September last year. If it can break through the February high of 165.99 yen, the momentum of GBP appreciation will further strengthen.