In the UK, BoE policymakers yesterday (Thursday 4 August 2022) voted 8-1 to increase interest rates up by 0.5% to 1.75%.
Whilst this increase was expected, what was a surprise was their revised growth and inflation forecasts.
Although their new inflation forecast is for price rises to peak later this year at 13.3%, surprisingly they believe that inflation will remain elevated (and above current levels) all the way through next year and won’t return to their 2% target until 2025!
The BoE’s revised growth forecasts were equally gloomy, as they now think the economy will shrink by 2% as the UK economy is not only expected to enter recession this year, but it won’t return to growth until 2024.
Rather than mince our words, these forecasts are completely pointless and should be taken with a pinch of salt, simply because we are about to have a new Prime Minister and a significant change in government policy – especially if it is the bookies’ current favourite, Liz Truss.