Against a backdrop of market volatility triggered by a new banking crisis, the Bank of England said that the UK’s banking system remains “resilient”, although it acknowledged that the failures of SVB and Signature Bank in the US and Credit Suisse in Europe had prompted “large and volatile moves in global financial markets”.
- The BoE raised rates by 25 basis points
- The rate of inflation unexpectedly rebounded
- The UK is no longer expected to fall into recession this year
Banking crisis 2.0? Against a backdrop of market volatility triggered by a new banking crisis, the Bank of England (BoE) said that the UK’s banking system remains “resilient”, although it acknowledged that the failures of SVB and Signature Bank in the US and Credit Suisse in Europe had prompted “large and volatile moves in global financial markets”. In a hearing of the Treasury Select Committee , BoE Governor Andrew Bailey said: “I do not think that we are at all in the place we were in in 2007 or 2008 … but we have to be very vigilant .. we are in a period of very heightened – frankly – tension and alertness”. The FTSE 100 Index fell by 3.1% over March, while the FTSE 250 Index declined by 4.9%.
“We are in a period of very heightened – frankly – tension and alertness” (BoE Governor Andrew Bailey)
Rates rise to 4.25%: UK interest rates continued to climb during March as the BoE implemented an increase of 25 basis points, taking its key base rate to 4.25%. BoE Governor Andrew Bailey said that policymakers would consider the impact of recent tightening before implementing further increases, but also insisted that the central bank was ready to tighten rates further if necessary, warning: “Nothing is decided”. Having eased to 10.1% in January, the UK’s annualised rate of inflation rebounded in February, rising to 10.4%. It is predicted to fall to 2.9% by the end of this year.
Spring Budget: the Government’s Spring Budget saw the abolition of the pensions Lifetime Allowance and an increase in the Lifetime Allowance from £40,000 to £60,000. The Office for Budget Responsibility (OBR) reported that the economic downturn is likely to be shorter and shallower than previously feared, although living standards are set to decline at their most rapid rate since records began in 1956.
Lacklustre economic outlook: having contracted by 0.5% in December, the UK economy grew more strongly than expected in January, expanding by 0.3%. In the three months to January, however, growth was flat. Although the UK is now expected to avoid recession in 2023, it remains the only G7 economy that is predicted to shrink this year, according to the Organisation for Economic Cooperation & Development (OECD) , although the contraction is set to be less severe than previously forecast. The OECD expects the UK economy to shrink by 0.2% over the year, compared with its earlier prediction of -0.4%.
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