Bank of England after raising interest rates by 75 basis points, the highest in 33 years.

At the last meeting of monetary policymakers in Britain in November
3, 7 people voted to raise interest rates by 75 basis points to reach 3%,
and this increase is the largest in interest rates in 33 years,
despite that, it came completely contrary to the expectations of the markets For future expansions,
in addition to warnings about reaching a recession that may last for two years, and in this context,
the future expectations of the Central Bank indicate a peak in interest rates
that will be lower than the expectations of the financial market

topics

The effect of interest rates on the gross domestic product

The Fed is trying to get the situation under control again.

The Bank of England is at a critical time

The effect of interest rates on the gross domestic product

A comment came from the Bank of England on the current path of market expectations
regarding the continuation of raising interest rates,
indicating that these increases will lead to their reaching a peak next year at 5.25%,
and this leads to a reduction in the gross domestic product by about 3% and also push inflation to zero.
On the other hand, there is a view pointing to keeping interest rates at their current levels of 3%,
which leads to stagnation in the economy. Still, it is shorter and less,
in addition to the expectation of a drop in inflation near the target within two years.

The Bank of England also said that there are more increases in interest rates,
which may be required strongly if pressures continue in this way,
while expectations indicate that inflation in the coming months will
reach its peak at 10.9% with expectations of its decline, but in 2025

The Bank of England is catching up with the Fed

The latest interest rates came after the US Federal Reserve’s decisions to raise
interest rates by 75 basis points during the last four consecutive meetings,
to reach the range of 3.75 to 4%, indicating a future increase, but at a lower pace,
while the Bank of England is facing difficulty in balancing operations,
which is the most difficult because The high interest significantly affects growth
while the government imposes another round of austerity,
and in this context of increases,
it will lead to the loss of more jobs and an increase in unemployment
to 6.4% with a decrease in inflation within two years to 1.4%,
which is less than the target at 2%, and that the conditions
The current do not indicate that the United Kingdom has escaped from recession yet,
and also that GDP will shrink by about 1.7%

The Fed is trying to get the situation under control again.

Confronting inflation is a difficult matter, especially as it is a strong warrior in the depth of the economy.
As for the idea of stopping it at a certain limit,
it requires influencing other aspects in the depth of the economy,
the recession, and the increase in the unemployment rate.

It has gone through multiple crises that the American economy has faced,
such as the Corona pandemic, which has paralyzed the economy scientifically,
as well as facing the housing crisis and providing homes for American families.

The general matter, which some opinion leaders had doubts about,
fearing its negative impact on the economy,
and that most of the effects on inflation are outside the control of the Federal Reserve.

For example,

during the housing crisis, the Federal Reserve does not have any tool to control the high rent price,
so any intervention on its part may worsen the situation, as once the interest rate was raised,
the mortgage market was affected and the price rose,
which led to a decrease in demand on the real estate market,
and the impasse became then, Is how the Federal Reserve reduces core inflation,
in which rent is the largest component, at a time when the bank’s primary tool,
which is to raise interest rates, seeks to increase rent prices,
the traditional answer was to raise the unemployment rate,
as with the increase in unemployment, more young people will be forced to move again to homes
their families or sharing the housing with others, and this behavior has led to a decrease in the supply.
This and in turn led to calming inflation in rents.

The consumer has already begun to respond to that trend,
as the percentage of adults residing with their families and friends has risen,
according to a report conducted by the UBC Group.

Their percentage has increased from 11% to 18% in response to the national trend to fight inflation,
and the demand for apartments has also decreased from two hundred thousand units.
the year 2021 to nearly negative eighty-two thousand units this year.

This is the first negative reading in nearly thirty years.

The pandemic had a great impact on the situation,
as the period of commitment to homes was one of the biggest drivers of desire to build new families, build homes,
and search for new opportunities to work via the Internet, media,
and work from homes, which contributed to the increasing demand for Home construction market
The areas used for construction have grown by nearly ten percent to reach 2,312 square feet since the Great Recession,
which means that the elderly and those responsible for families and
their families have allocated part of their homes and possessions from land to host children,
friends and their families. Decisively changing even before the pandemic. In February 2020,
forty-seven percent of young people lived with one of their parents,
the highest percentage since the 1930s. In 1960,
only thirty percent of young people lived with one of their parents,
and the rest were using single homes.

Raising interest has satisfactorily played its role in reducing inflation in the housing market.
If the Fed continues to raise the interest rate to 4.75% and then stops,
it will be sufficient to reduce inflation in the housing market from
two percent to negative three percent in 2024,
according to reports. The expectations are that the Fed won several rounds,
but this round is one of the most difficult of them.

The Bank of England is at a critical time

and bad expectations indicate the shadows of its path toward solving the crisis.

Great fears touched the minds of the Bank of England of returning if the nineties of the last century died,
which led to the economy’s contraction and decline.
The Bank of England said last week on Thursday that it may face the longest recession
in history and a deflation rate of 2.9% will be deep.

Economists had an explicit opinion about the bank’s mistake in announcing these statements
that will make matters worse and will not be useful in solving the recession problem.
It is better to search for island solutions, rather than hinting at the matter from afar,
by issuing statements such as the one that was issued last Thursday.

Regarding that trend he talked about,
it is assumed that the interest rate for the Bank of England will reach approximately 5.25%
and remain higher than four percent until 2025.

According to Jaket Chadda,

director of the National Institute for Economic and Social Research,
who added that households may curb spending and companies can slow investment,
the Bank of England rarely warns of a recession,
and raising the possibility of one could lead to negative inflation as
the BoE may stop raising interest rates due to
the risk of causing a recession and a self-slowing economy.

The Bank of England’s chief economist

he and Bell said last Friday that there was a need to raise interest rates
above the current rate of about three percent to curb inflation,
but not as high as the five-point 25 percent rate that the market had expected
when preparing the forecast.
Bell added that a rate hike to 5.25% is unlikely “precisely because it will lead to weak growth
and a sharp slowdown that we cannot afford.”
The Bank of England raised interest rates on Thursday by three-quarters of a percentage point,
to 3%, and said the economy would contract At a rate of 1.7%,
even with the stability of monetary policies.

There were also some important statements on Friday, such as that of HSBC,
which expected the interest rate hike to reach its highest level in February at 3.75%,
down from 4.5%, and it is expected that the alternative charter is to follow the Fed’s approach
and produce dot charts According to which each of the nine members of the Monetary Policy
Committee reveals their perception of the path of interest rate development,
Gorgan Felghi, a former member of the Monetary Policy Committee,
called for the application of the paint scheme mechanism at the Bank of England,
which stands at the crossroads now.

article name Bank of England after raising interest

Bank of England after raising interest

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