The UK economy has shown resilience with stronger-than-expected economic growth, but this also increases the likelihood of more rate hikes in the future. This news has caused worries in the Square Mile, leading to a drop of 1.2% in the FTSE 100. The Bank of England is predicted to raise rates at its next meeting.
Mortgage holders may face further challenges as the UK economy rebounded by 0.5% in June after a decline of 0.1% in May. The Office for National Statistics (ONS) attributes the growth to warm evenings, packed stadiums at music concerts, and a surprise boost in manufacturing. Chancellor Jeremy Hunt states that the actions taken to combat inflation are starting to have a positive effect on the economy.
While interest rates are at their highest levels in 15 years, the rise in economic growth suggests that consumers are holding up better than expected. However, inflation remains well above the target of 2%, giving the Bank of England room to consider additional rate increases. Neil Birrell, CIO at Premier Miton, believes that the GDP data presents a dilemma for the central bank, potentially complicating decisions regarding interest rate hikes.
Concerns about future rate rises have impacted trading in the Square Mile, resulting in the FTSE 100 experiencing a decline. The Bank of England is still expected to raise rates at its next meeting following a 0.2% rise in GDP in the second quarter of the year. While the UK’s growth outperformed some developed nations, it lags behind others such as the US and France.
Data suggests that 70% of traders anticipate a rate increase next month, with many predicting rates to reach at least 5.75% by the end of the year. This level has not been seen since 2007. Following the positive GDP data, the cost of UK government debt has also risen. However, economists caution that the full impact of previous rate hikes has yet to be felt by the economy, and there is a risk of a mild recession later this year.
Suren Thiru, Director of Economics at the Institute of Chartered Accountants in England and Wales, believes that the UK is entering a challenging period. Stubbornly high inflation, soaring interest rates, and unfavorable weather conditions may weaken GDP considerably in the third quarter. Thiru also warns that further rate increases could destabilize an already fragile economy.
It is worth noting that the UK is the only G7 country yet to see its GDP return to pre-pandemic levels.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
