“Bank staff now expect GDP to decline by 0.3% in the second quarter as a whole, which is weaker than expected at the time of the May report,” the Bank of England said in a statement.
“Consumer confidence has fallen further, but other indicators of household spending appear to have stalled. Some indicators of business sentiment have weakened, although so far they have remained more resilient than indicators of consumer confidence and consistent with positive underlying GDP growth,” he added.
The central bank said three members of the Monetary Policy Committee wanted to raise interest rates by 50 basis points to 1.5% – which would have been the largest increase in 27 years – but the other six members voted out.
The British economy is in a dismal state. Gross domestic product contracted 0.3% in April, after a 0.1% decline in March, according to data from the Office for National Statistics. Output in all three major sectors – services, production and construction – fell for the first time since January last year.
George Buckley, Nomura’s chief UK and Europe economist, told CNN Business that it was “understandable” that the Bank of England decided to raise rates more modestly than its US counterpart.
Bank of England [thinks] Buckley said that the current high inflation will harm growth itself and ultimately lead to lower inflation in the future.
“The bank is struggling with rising inflation, but at the same time the risk of stagnation – so it is understandable that the differences of opinion in the committee are now about how much tightening is needed,” he added.
– Nicole Goodkind contributed reporting.
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