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Bank of England warns the UK will fall into recession this year
- easytiger 4y agoThe genuine hilarity that Bailey blames this solely on Russia is beyond absurd.
- bvrmn 4y agoI think many of us will be interested in your analytics of current situation and other guilty parties.
- FridayoLeary 4y agoHigh borrowing, low interest rates, supply-chain issues, irresponsible fiscal policies by the government, labour shortages and "quantitative easing" are possible candidates. Plus out-of-control inflation.
- throwawaylinux 4y agohttps://ichef.bbci.co.uk/news/976/cpsprodpb/9FD6/production/_125981904_uk.infl.cpi-nc.png https://ichef.bbci.co.uk/news/976/cpsprodpb/9FD6/production/... A lot of it correlates well with COVID related disruption to supply, QE, and stimulus spending, and well before Putin's alleged price hikes.
- bvrmn 4y agoOk, after COVID we had 3% inflation. And you tell that without Putin and gas prices it would reach 9% in a span of 6 month?
- throwawaylinux 4y agoWhen was after COVID?
- bluedino 4y agoI think the energy prices situation is going to be far worse in most of Europe than in the USA, but this winter is going to suck as far as heating bills go. We'll probably see rebate checks go out, or at least programs to give money to low-income families for their bills, but they probably won't send those out until February or so. People are going to be wishing for global warming at that point.
- avnfish 4y agoUK govt is providing rebates from October onwards to all bill payers [] so I wouldn't be surprised [] https://www.gov.uk/government/news/400-energy-bills-discount-to-support-households-this-winter https://www.gov.uk/government/news/400-energy-bills-discount...
- ZeroGravitas 4y agoJust giving cash to everyone would be simpler and better, since you could spend it on jumpers rather than fossil fuels if you wanted to, but subsidies for buying fossil fuels are mysteriously popular with governments that don't like subsidies in general.
- shaftoe444 4y agoNow is the time to buy some nice jumpers, longjohns and blankets. Not even joking.
- akmarinov 4y agoPeople in Germany are already clearing out electric heaters and it’s record hot outside… Let’s just see how the electricity situation works out in the winter.
- bojangleslover 4y agoClassic Germany. I love it. Totally rational thing to do. On the other hand even electric heaters must draw from somewhere, and it's looking like it might be coal.
- FridayoLeary 4y agoThis time last year they claimed the inflation was "transitory". They were caught sleeping behind the wheel.
- zarzavat 4y agoThey are economists, not seers. Nobody could have predicted the invasion of Ukraine and subsequent effect on gas price this time last year.
- throwaway4aday 4y agoInflation was already at 7% when Russia invaded and had been well above 4% for most of 2021. What part of that looks transitory?
- golergka 4y ago> Nobody could have predicted the invasion of Ukraine Many people have actually predicted it. Not economists, though.
- jstx1 4y agoJust about everything is predicted by someone at some point. Once an event takes place it's very easy to look back and pick out the people who were right.
- Ekaros 4y agoI think no one listened to predictions what entering to economic warfare would entail. And actually thinking that even if Russia would end losing would they still keep delivering the cheap energy...
- iasay 4y agoIt doesn't work like that. There was public intelligence mid summer last year and we were running transports full of weapons to Ukraine back in December. This was all over paid up commercial intelligence feeds that investment companies have access to. You'd have thought they would have the same info at hand. It was damn obvious where we were heading. Same as the rise of Covid 19 was reported as far back as November 2019 on the same feeds. The problem is no one competent is at the wheel and the default policy is keep the spice flowing and hope the fuck the problem goes away and when everything goes to crap, blame it on "external factors" or something. Edit: I think really it's "politically inconvenient" to have issues at some times so they hide them.
- rvz 4y agoAt least in the UK, they were realistic and honest about it and not immediately hiding with spin doctors and releasing reality distortion spells onto the general public unlike in other places. And no, it is not early days and the cheap money is all gone, thus all companies funded with 98% of VC money and having little to no revenue in return for years, cannot hide and aren't going to survive that long, especially in a recession.
- FridayoLeary 4y agoReally? Here's a link to the actual report https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/august-2022 https://www.bankofengland.co.uk/monetary-policy-summary-and-... >Inflationary pressures in the United Kingdom and the rest of Europe have intensified significantly since the May Monetary Policy Report and the MPC’s previous meeting. That largely reflects a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs. I'm not an economist, but another comment has already expressed skepticism over that claim.
- whywhywhywhy 4y ago>t least in the UK, they were realistic and honest about it and not immediately hiding with spin doctors and releasing reality distortion spells onto the general public unlike in other places. The reason the US I presume you're talking about is hiding it and pretending it's not happening is because things are about to get way worse and you'll be begging for what prices are right now in a few months. They'll only play those cards when it gets as bad as they're anticipating.
- bryanlarsen 4y agoHouse, fuel and commodity food prices are dropping. What's going to make it get way worse?
- SideburnsOfDoom 4y ago> in the UK, they were realistic and honest about it The UK government is anything but "realistic and honest" about all the forces at work; they are collectively still in deep denial about the impact of Brexit.
- ogogmad 4y agoCan you really forecast inflation? They failed to do so before the whole Russia shit-storm, and they're trying to yet again. It seems to make more sense to base economic policy on finding choke points and vulnerabilities, and addressing them before they get triggered. Wars from without are unpredictable, but you can prepare for the disruption from within. Economic forecasts by contrast seem like soothsaying.
- spywaregorilla 4y ago> Can you really forecast inflation? They failed to do so before the whole Russia shit-storm, and they're trying to yet again. The primary reason they failed was BECAUSE of the Russia shit storm. Predictions about anything are vulnerable to change from new information. That doesn't mean making predictions is a bad idea. It's still the best model you've got.
- ogogmad 4y ago> Predictions about anything are vulnerable to change from new information. The problem with predictions is that an event might be 99% likely to happen, but it might still be prudent to consider the 1% of cases where it doesn't happen if that's sufficiently high impact.
- spywaregorilla 4y agoConsidering a 1% event doesn't mean the best course of action still isn't to assume the 99% is going to happen. If there's a 1% chance of rain, the expected value of amount of rain is "a little bit of rain" but the forecast is still most usefully described as "no rain".
- ogogmad 4y agoThe point is that the magnitude of the outcome needs to be considered. Forecasting is about finding high probability outcomes, while not considering high-magnitude but unlikely outcomes. This makes forecasting sometimes a questionable activity.
- dzonga 4y agowhy does UK gvt blame energy prices on Russia, when the Uk is close to energy independence. yeah central european countries that need to import energy from russia, okay. the reason energy bills are so high is energy companies thought they could get away with it, and they did. Shell just reported massive quarter profits. and the Uk will just let them scoot free
- Balero 4y agoBecause if they don't blame energy prices, they will have to face that it is in part down to Brexit. (and some other complicated hard to explain reasons that won't make for a good soundbite, so people will only focus on Brexit) Brexit is basically a religion for the current Conservative party, and it absolutely can not be questioned, or criticised.
- ogogmad 4y agoBut isn't most of the developed world experiencing a recession? The US is energy independent, not having a Brexit, and still experiencing high inflation.
- Applejinx 4y agoWe did have a Boris Johnson-like figure running things for a while there.
- tialaramex 4y agoTrump isn't quite like Johnson. Johnson is a liar. Trump is a bullshitter. Johnson knows what the truth is, and is actively trying to deceive or confuse you. Trump has no idea what truth would be even in principle, he's just making whatever noises seem to work. Probably this makes Johnson a worse person, and Trump a worse leader? I'm not sure.
- lozenge 4y agoIf the UK insisted on purchasing gas at a lower price then companies would just export the gas instead of selling it domestically. The mistake was selling off the rights of fossil fuels to private companies in the first place.
- jacknews 4y agoI don't see how raising interest rates is supposed to affect supply-side price increases. For example, people may choose to save their money, or not borrow (given higher interest rates), instead of buying fuel, but that is unlikely to affect it's price. This seems more like an attempt to strangle wage increases.
- spaceman_2020 4y agoThe goal is to disincentivize people from speculating, especially in the housing market. Low rates -> more money flowing into housing markets -> higher rents
- mmarq 4y agoThe point is to cool down investment and maybe to manufacture a small recession to reduce inflation expectations. Another point is to show that the Bank reacts to inflation, so that people (such as the Trusses of the world) know what happens if they decide to contribute to an inflationary spiral.
- Maakuth 4y agoSupply and demand at work. If there is less demand of fuel, it's price goes down, if everything else stays the same. Certainly everything else does not stay the same, but at least partially the price increase pressure is alleviated.
- jacknews 4y agoGlobally, perhaps, but even then supply is, let's say, constrained, currently, and can probably be further constrained to meet demand. I don't see Russia altering their output to accommodate UK consumers becoming poorer.
- WhiteOwlEd 4y agoIt seems like it rate hikes would reduce demand, and I think policymakers believe a reduction in demand will force the price reductions. For example, in the US, recent interest rate hikes led to even larger mortgage rate hikes. The increase in mortgage rates had the effect of making it more difficult for people to afford homes. Once mortgage rates started rising here, I started to see a reduction in homes sold and it has started to lead to a slight reduction in home value.
- sebow 4y agoIs any western economy really not already in a recession? We already know certain economies(think Germany, US,UK,etc) have their symptoms(or trends) shown faster than the ones pegged to them. The question people should have is how we bounce back from it. Germany for example has been de facto in a recession since 2018( 0.2% See Forbes), US managed to climb until Trump's late moments. I find it very funny when the media(not to say the establishment at large) either tries to hide the economic situation or blame it on their political opponents. Blaming Russia is not the entire issue, i'd say locking down the globe for 2 years for essentially no reason is a bigger problem, but then again people who were saying there would be repercussions for lockdowns were quickly shunned. After Russia the next boogeyman will be climate change, after that: who knows, maybe WW3 or China. All of them are real concerns on their own but none pinpoint the actual issue: western leadership that promotes policies that facilitate the very top of the "economic iceberg" instead of the vast majority of the people(think increasing the middle class).Most of the people represent the economy, so even if you have record-setting profits for corporations, the economy still performs poorly.
- starkd 4y agoA lot of people profit off of chaos and external threats. Maybe we should be paying more attention to such motivations.
- boplicity 4y agoHigh energy prices are optional. US, UK, and European countries could set a limit on the price of oil. Instead, they are opting to allow companies within their borders to rake in record profits -- at the same time that they're allowing high oil prices to subsidize Russia's war efforts. This can be changed through regulation -- but I seriously doubt it will happen. It would take real political will that simply isn't there. [1] https://www.theguardian.com/business/2022/may/30/could-a-cartel-of-large-energy-consumers-cut-oil-and-gas-prices https://www.theguardian.com/business/2022/may/30/could-a-car... [2] https://voxeu.org/article/eu-gas-purchasing-cartel-framework https://voxeu.org/article/eu-gas-purchasing-cartel-framework
- highfrequency 4y agoThe fundamental problem is that there is not enough oil. This gets reflected in higher oil prices, which incentivize companies to produce more oil (which is expensive and requires long-term investment). If you force oil prices to stay low such that they do not reflect supply-demand dynamics, you are not solving the fundamental problem. Supply and demand imbalances do not disappear when you fix the price - they are exacerbated.
- lapser 4y ago> The fundamental problem is that there is not enough oil. This is a farce. There's not enough oil because OPEC+ has decided there is not enough oil. They can easily increase supply, causing the price of oil to be more consumer friendly, but no, won't someone think of their profits?!
- kypro 4y agoI know it was inline with expectations, but A 50bps move seems far too aggressive to me. I understand the risk of long-term inflation expectation moving higher and the need to contain them, but given recession is now the base-case it seems absolutely absurd to me to be overly worried about long-term inflation expectations. There is nothing the BoE can do to directly address the supply-side inflationary pressures we're facing. What they should be focused on right now is where inflation expectations are likely going to be given their economic forecasts, and while those forecasts do suggest double-digit inflation numbers, they also suggest recession. While some monetary tightening was clearly needed, this has been a period of historically aggressive monetary tightening, to tackle inflation pressures that they have next to no control over, into a recessionary environment, during a time when people are struggling to pay their energy bills - let alone their mortgage and other repayments linked to interest rates. If their transitory inflation call wasn't bad enough, they're now about to follow that with an even larger policy mistake which will push thousands of people into poverty, with many likely to lose their homes and jobs as a direct result of this move. Well, that's my opinion anyway. I think this 0.5% move after 5 consecutive 0.25% hikes given the economic risks is insane.
- jon_adler 4y agoSometimes there isn’t any good options available. Persistent inflation is usually a long term problem, and their mandate is to (attempt to) maintain inflation within the 2% range. We might just have an unavoidable recession. I’m not diminishing the detrimental consequences of this, just acknowledging it is likely to happen no matter what the BoE chooses. At least this short term pain scenario should bring inflation back under control, allowing for growth and gain in the medium term.
- kypro 4y agoI'm not saying there are good options available at this point. The primary mistake was the illusion that we could close the economy for months just to reopen without any problems, but then we followed that with the second mistake of not raising rates in 2021. The economic consequences which would result from the COVID lockdowns, monetary stimulus and fiscal stimulus was something I warned about repeatedly during 2020-2021. We're screwed whatever we do now and I agree recession is unavoidable at this point. Many people are about to lose everything and many will die as a result of fuel poverty whatever the BoE do. All they can really do now is try to limit the pain. On whether rate rises are needed, you're assumption is that persistant inflation is a concern, and I don't agree with this. The inflationary pressures we face are mostly a result of fuel prices which aggressively increasing rates will do nothing to solve. For you to be right you have to explain both why you think increase rates will control inflation we're seeing (it won't) and why you think inflation expectations will remain high in a recessionary environment (unlikely). In addition to this you also have to explain why further rate rises on top of the 5 prior raises is required. We know it takes time for rate rises to take effect so aggressively raising rates like this presents huge risks if economic data deteriorate in the coming months. If the BoE is concerned about inflation expectations, then the question to ask is why this wasn't a concern in 2021. Now recession is imminent inflation expectations shouldn't be as much of a concern.
- cykros 4y agoIt WILL move into recession? I think we finally found the world's first one handed economist. Someone let Harry Truman know!