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IMF Cuts UK Growth Outlook Sharply on Inflation Surge

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The International Monetary Fund on Tuesday cut its economic growth forecast for the UK this year on surging inflation and rising interest rates. News Online

The UK economy was set to grow 3.7 percent this year, down on an IMF estimate of 4.7 percent given in January, one month before Russia’s invasion of Ukraine sent global prices rocketing further.

“In the United Kingdom, GDP growth for 2022 is revised down one percentage point,” the IMF said in its latest World Economic Outlook.

“Consumption is projected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions are expected to cool investment,” it added in reference to Bank of England rate hikes.

The IMF also sharply downgraded its UK growth estimate for next year — to 1.2 percent from a forecast of 2.3 percent given just prior to the outbreak of the Ukraine war.

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“What we are seeing in our projections is that the UK is facing elevated inflation pressures and … tightening its monetary policy,” IMF chief economist Pierre-Olivier Gourinchas told a press briefing.

“This is one of the factors that’s going to weigh down on economic activity, both this year and the next.”

Petya Koeva-Brooks, deputy director of the IMF Research Department, cautioned that other nations faced steeper downgrades than Britain.

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“We are predicting this year the UK economy to grow by about 3.7 (percent) which is a downward revision of about one (percentage point) and the main reason for that is just the major supply shock that the economy is facing,” said Koeva-Brooks.

“That said, I should also say that we’ve had larger revisions in a number of countries in Europe, notably Germany and as well as Italy,” she added.

Britain’s annual inflation rate is at its highest level in three decades, largely on sky-high energy prices.

Costs are surging worldwide after economies reopened from Covid lockdowns and on fallout from the war in Ukraine.

However, sharp price rises are forcing central banks to hike rates, in turn curbing economic recovery from the pandemic.

The Bank of England is raising interest rates, mirroring the Federal Reserve as the United States suffers its highest inflation in 40 years.

UK inflation spiked to 7.0 percent last month, sparking concern over a cost-of-living crisis as food and energy costs shoot higher.

The BoE in March hiked its main rate by a quarter-point to 0.75 percent, its third increase in a row as it looks to combat price pressures.

The British central bank has forecast that UK inflation could reach double figures by the end of the year.


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Notes from APS Radio News

During the past few years, a number of the world’s central banks have engaged in massive programs of monetary expansion, even as jobs and businesses were lost by way of virus-related restrictions and quarantines.

For example, beginning in March of 2020, the US Federal Reserve engaged in a substantially greater program of monetary expansion by purchasing hundreds of billions of dollars of Treasury and corporate bonds.

Since the early part of March 2020 to date, the Federal Reserve has added over $4 trillion to its holdings.

In particular, whereas on or about February 24, 2020, the holdings of the Federal Reserve stood at $4.2 trillion, on or about January 17, 2022, the holdings of the Federal Reserve stood at about $8.9 trillion.

As well, the Federal Reserve has kept interest rates low.

Recently, Jerome Powell, the head of the Federal Reserve, said that he wasn’t concerned about inflation and that, for the none, the Federal Reserve would keep interest rates at low levels.

Another examples is that of the Bank of Japan.

According to Fred Economic Data, as of October 2021, the Bank of Japan’s holdings were about $6.4 trillion or about 725 trillion Yen.

In the early part of March 2020, the Bank of Japan’s holdings were $5.3 holdings. During the period mentioned, the Bank of Japan added over one trillion dollars to its holdings.

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A number of corporations have been borrowing money inexpensively and have been purchasing their own shares of stocks, increasing share prices of stocks.

Still, there are concerns among investors.

A number of them have expressed concerns about central banks’ eventually increasing interest rates, as, during the past year, inflation levels have been increasing.

The combination of low interest rates, expansive monetary policies, fiscal stimulus programs, which themselves have infused trillions into the US economy, and shortages of goods and services caused by virus-related restrictions and lockdowns has increased levels of inflation.

Investors also worry, for example, about announcements recently made by Toyota and VW; those companies have announced that because of shortages of particular types of material, they will be reducing levels of production.

Some weeks ago, the results of a survey of UK manufacturers were released.

That survey indicated that many businesses in the UK are concerned about shortages of supplies and will be making necessary adjustments.

In general, jobs and businesses have been lost by way of mandates, restrictions and quarantines, which, in their turn, were imposed by way of the virus narrative.

In the US, overall, the mortality rate of the virus is about .069%, according to Statista, an award-winning service.

The recovery rate is over 99% for most age groups.

What has followed in the wake of lockdowns and mandates has been the infusion of trillions of dollars into the US economy, the increasing succeess of online businesses like Amazon and other large online retailers, various bank and tech-related stocks, the shuttering of small to medium-sized businesses and the loss of millions of jobs.

Another result has been the increasing levels of inflation, especially those of food and fuel.

In official terms, for purposes of reporting, the US Labor Department uses what is called “core inflation”.

Core inflation excludes items like food and fuel, as those are deemed too volatile.

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