Low growth and rising prices - it's looking gloomy for the UK - Voice of Asia

The Bank of England has cut interest rates again, with the surprise this time being that policymakers more fully considered a one-off, sharp reduction of 0.5 percentage points, as the UK economy's stagnation is expected to continue into the first half of this year. This bold move reflects the urgency to stimulate economic activity amidst growing concerns.

All things being equal, one would naturally assume that the weak economic situation would lead to further gradual interest rate cuts this year, bringing rates down to 4% or lower by the end of the year. However, the economic stagnation, coupled with rising energy prices, also brings more severe inflation risks. These conflicting pressures create a complex challenge for monetary policy.

Inflation is expected to "rise sharply" in the autumn, approaching 4%, primarily due to rising gas prices as depleted gas storage facilities need to be replenished after the winter. While a recession is expected to be narrowly avoided, zero growth and high and rising inflation are typical of "stagflation." The central bank remains vigilant to prevent further economic downturn.

Furthermore, the Bank of England emphasized that it will be "cautious" about cutting interest rates, given the significant uncertainty brought about by President Trump's trade policies. This uncertainty lies not only in his specific actions but also in the market's reaction to them, and the responses of other countries, including the UK. Today's weak forecasts do not take into account US tariff policies.

For the Chancellor of the Exchequer, this is a series of frustrating figures. The economy has been stagnant since March. While a technical recession has been narrowly avoided, there is a high probability of facing stagnant or weak growth this year. The economy is now expected to grow by only 0.75% this year, half the growth rate forecast in November. Unemployment is expected to rise to just under 5% in the next two years.

The Bank of England's reports from engaging with businesses show that more companies "mentioned the budget hindering investment," and referred to business asset relief, inheritance tax, and national insurance. The Bank of England also assessed the long-term health of the economy, concluding that illness, the pandemic, and Brexit have all hit the economy's productivity.

In conclusion, the domestic outlook is challenging, and global uncertainty is increasing. These combined factors create a difficult environment for policymakers navigating the UK economy.