Introduction: Stagflation dreads elevate after gloomy Bank predicts
Good morning, and greet to our rolling coverage of business, the financial tagets and the world economy.
Stagflation dreads are rippling thraw the City today after the Bank of England slashed its lengthenth predicts on Thursday, and lifted its inflation predict.
As we covered yesterday, the Bank halved its predict for GDP lengthenth this year to equitable 0.75%, down from 1.5% foreseeed three months ago.
In another blow to the rulement, the Bank foreseeed inflation would peak at 3.7% procrastinateedr this year, proximately twice its 2% concentrate, as rising energy prices push up the cost of living aacquire.
Despite this gloomy outwatch, the Bank cut interest rates, arguing that a “persistd, gradual easing of underlying inflationary prescertains” is underway in the UK economy.
Weaker lengthenth and rising inflation is a harmful combination for chancellor Rachel Reeves; it could be kryptonite to her hopes of sticking to the fiscal rules lhelp out in last years budget.
As our economics editor Heather Stewart elucidates
Economic output is foreseeed to have reduceed by 0.1% in the final three months of 2024 and broadened by equitable 0.1% in the current three-month period – skinnyly skirting a economic downturn, detaild as two successive quarters of degrade. The Bank advises productivity, which Reeves awfilledy wants to better, has degraded.
If the autonomous Office for Budget Responsibility (OBR) gets a analogous watch, it could originate a acute downgrade to its lengthenth predicts when these are unveiled on 26 March, from the 1.9% it was foreseeing in October.
Whether that wipes out Reeves’s room for manoeuvre aacquirest her fiscal rules depfinishs on how the OBR assesses the extfinisheder-term outwatch. Market foreseeations of reduce rates in the UK may endure down on the rulement’s cost of borrotriumphg, helping to offset some of the impact on the unveil finances from feebleer lengthenth.
But the MPC’s gloomy prognosis sits in stark contrast to Reeves’s choosedly upbeat messaging on lengthenth in recent week
BoE ruleor Andrew Bailey also alerted that while he is very encouraging of Reeves’s lengthenth agfinisha, meacertains such as a novel Heathrow runway or novel reservoirs won’t shift the lengthenth dial in the unwiseinutive term.
Yesterday’s rate cut conveys down Bank Rate to 4.5%, and the City money tagets foresee at least two more quarter-point cuts by the finish of the year.
But if inflation pushes higher, those predicts could come under prescertain.
Van Luu, head of currency and mended income solutions strategy at Russell Investments,
Making policy in a “stagflation” environment with high inflation and conciseageluster lengthenth is a createidable dispute. Tax hikes and elevates in administered prices will at least temporarily incrmitigate price prescertains.
The equilibrium between the inflationary impulse and a sconciseageening jobs taget will choose the pace of further rate cuts in 2025.
The agfinisha
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7am GMT: Halifax house price index for January
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7am GMT: German trade data for December
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1.30pm GMT: US non-farm payroll for January
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That’s proximately a quarter less than the company’s 2023 fundraising appreciate, echoing various headtriumphts hitting Shein.
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Reuters elucidates:
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The company’s business prospects have come under a cboisterous in recent days after the Trump administration shelp it would shut the “de minimis” duty exemption in the United States, finishing an convey in rule that had helped Shein uphold prices low.
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The meacertain’s removal could hurt Shein’s profitability and push up product prices in the U.S., its hugegest taget, analysts and industry experts have shelp.
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Shein is also facing disputes in Europe, where parcels sent from China by online retailers will face innervous novel customs administers as part of a crackdown by the European Comleave oution on “hazardous products” flooding the EU taget.
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Hong Kong will file a grumblet with the World Trade Organisation over tariffs imposed by Donald Trump earlier this week.
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The Hong Kong Special Administrative Region (HKSAR) rulement today shelp it was unequitable that the US was imposing an insertitional 10% on products of Hong Kong, so it has choosed to grumble to the WTO.
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A HKSAR spokesman shelp:
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“The US’ meacertains are grossly inreliable with the relevant WTO rules and disthink about our status as a split customs territory as stipuprocrastinateedd in Article 116 of the Basic Law and recognised by the WTO. The HKSAR Government will createpartner start procedures in accordance with the WTO Dispute Settlement Mechanism aacquirest the US’ unreasonable meacertains to deffinish our legitimate rights.”
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The spokesman inserted that Hong Kong is “a staunch helper” of the rule-based multiprocrastinateedral trading system, and encouraged the US to get instant actions to rectify the situation.
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The grumblet comes three days after Donald Trump imposed an insertitional 10% tariff on excellents from China, prompting Beijing to retaliate with tariffs on some US convey ins.
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Earlier today, India’s central prohibitk cut its benchtag interest rate for the first time in proximately five years.
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The Reserve Bank of India reduceed the repo rate, which the central prohibitk lfinishs to commercial prohibitks, by a quarter of one percent, to 6.25%.
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The shift comes as officials try to reverse sluggishing economic lengthenth in the world’s most populous country.
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Announcing the rate cut, the RBI’s monetary policy promisetee say:
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The global economy is lengthening below the historical mediocre even though high frequency indicators advise resilience amidst persistd expansion in world trade. The world economic landscape remains challenging with sluggisher pace of disinflation, lingering geopolitical tensions and policy uncertainties. The strong dollar, inter alia, persists to strain emerging taget currencies and raise volatility in financial tagets.
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On the domestic front, as per the First Advance Estimates (FAE), genuine gross domestic product (GDP) is assessd to lengthen at 6.4 per cent (y-o-y) in 2024-25 helped by a recovery in personal consumption. On the provide side, lengthenth is helped by the services sector and a recovery in agriculture sector, while tepid industrial lengthenth is a drag.
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Elsewhere in the property world, the UK rulement is forcing personal landlords in England and Wales to better the energy carry outance ratings of their properties.
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Under the set up, by 2030 all personal landlords will be needd to encounter a higher standard of Energy Percreateance Certificate (EPC) C or equivalent in their properties – up from the current level of EPC E.
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Currently, 48% of personal rented homes in England encounter this standard.
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Ministers say the set up could save personal rgo ins £240 per year on mediocre on their energy bills.
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Energy Secretary Ed Miliprohibitd shelp:
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For years tenants have been aprohibitdoned and forgotten as opportunities to deinhabitr hot homes and reduce energy bills have been disthink abouted and disthink aboutd.
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Landlords have troubles, though. Ben Beadle, chief executive of the National Residential Landlords Association, says:
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“We all want to see rented homes as energy efficient as possible, but that will need a rational set up to accomplish this.
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The chronic unwiseinutiveage of tradespeople to carry out energy efficiency toils needs to be insertressed, aextfinishedside a concentrateed financial package to help spendments in the toil needd as called for by the Committee on Fuel Pcleary and Citizens Advice.
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Importantly a rational timetable is needed if the 2.5 million personal rented homes, which will not currently encounter the Government’s advised standards, are to be betterd.”
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The ruleor of the Bank of England has encouraged Donald Trump’s administration to uphold US help for the World Bank and the International Monetary Fund.
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Andrew Bailey tbetter the BBC he was “follotriumphg excessively shutly” whether the Trump administration will alter its help for the two bodies, which are both convey inant global economic institutions.
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Sources in Washington shelp the two institutions were caught by a White House executive order for a verify of United Nations (UN) and other international organisations.
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Bailey shelp it is “very convey inant that we don’t have a fragmentation of the world economy”.
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He inserted:
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“A huge part of that is that we have help and joinment in the multiprocrastinateedral institutions, institutions enjoy the IMF, the World Bank, that help the operation of the world economy. That’s repartner convey inant.”
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Despite the 0.7% elevate in UK house prices in January, the rate of annual property price inflation sluggished in two thirds of the UK’s nations and regions at the commence of the year.
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Halifax increates that:
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Northern Ireland persists to have the strongest annual property annual price lengthenth in the UK, though at +5.9% in January this mitigated ponderably assessd to December (+7.3%). Properties in Northern Ireland now cost an mediocre of £205,473.
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House prices in Wales were up +3.6% assessd to the previous year, with properties now costing an mediocre of £227,397.
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Scotland once aacquire saw a reduce elevate in house prices assessd to the rest of the UK, with properties in the country now worth an mediocre of £210,690, +2.4% more than the year before.
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In England, the North East has overgetn the North West as the region with the strongest annual property price lengthenth, up +5.2% assessd to the previous year, with properties now costing an mediocre £178,696. This is the first time since September 2023 that the North West has not topped the table of English regions for annual lengthenth.
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London preserves the highest mediocre house price in the UK, at £548,288, up +2.8% assessd to last year
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January house prices started off with a 0.7% incrmitigate on last month’s festive efforts, making the mediocre house price, according to lfinisher @HalifaxBank now £299,138. That shelp, the annual rate of inflation sluggished for two thirds of all regions, Northern Ireland however remains the… pic.twitter.com/2rxUUcwIfW
— Emma Fildes (@emmafildes) February 7, 2025
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Economic lengthenth may be sluggishing, but UK house prices persists to elevate – according to lfinisher Halifax.
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It has increateed that house prices incrmitigated by 0.7% in January, follotriumphg a dip of 0.2% in December, lifting the mediocre price to a novel write down high of £299,138 (on Halifax’s index).
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On an annual basis, house prices were 3% higher – down from 3.4% in November.
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Amanda Bryden, head of mortgages at Halifax, says the UK housing taget commenceed the year “on a selectimistic notice”.
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She advises that some buyers may have been enthusiastic to elude incrmitigates in stamp duty coming this spring in England and Northern Ireland.
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Affordability is still a dispute for many would-be buyers, but the taget’s resilience is noticeworthy. There’s strong insist for novel mortgages and lengthenth in lfinishing.
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With a stamp duty incrmitigate looming, some of this insist may have come from first-time buyers enthusiastic to finish transactions before the finish of March.
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Bryden foresees that UK mortgage rates are foreseeed to hover between 4% and 5% this year, inserting:
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“Despite geopolitical uncertainties, and waning user confidence, other key indicators watch equitablely selectimistic for the housing taget. The Bank of England has made its first base rate cut of the year, and there are probably more to come.
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Househbetter acquireings are foreseeed to persist outpacing inflation – albeit that gap may skinny – easing some of the financial prescertain still being felt from the cost-ofliving squeeze
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Bank of England ruleor Andrew Bailey tbetter increateers that he doesn’t use the word ‘stagflation’, arguing that it doesn’t have a “exact unbenevolenting”.
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Some of the UK novelspapers disconcur – with stagflation dreads materializeing on cut offal of today’s front pages.
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The Guardian points out that the chancellor’s set ups for lengthenth suffered a double blow yesterday, with the Bank signalling that people would face a new squeeze on living standards from rising inflation even as the economy shighed.
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Friday’s GUARDIAN: Fears over stagflation as Reeves lengthenth set up suffers double blow#TomorrowsPapersToday pic.twitter.com/TKJJOfGtSa
— Jack Surrun awayt (@jacksurrun awayt) February 6, 2025
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The Daily Mail points out that Britain last suffered a bout of stagflation – soaring prices and descfinishing lengthenth – in the 70s.
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Friday’s DAILY MAIL: New era of stagflation#TomorrowsPapersToday pic.twitter.com/NJSyY0t5YO
— Jack Surrun awayt (@jacksurrun awayt) February 6, 2025
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The Daily Express calls the lengthenth predicts a ‘wake-up call’ for Reeves.
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Friday’s DAILY EXPRESS: Reeves ‘wake up call’ on ‘putrid’ figures#TomorrowsPapersToday pic.twitter.com/qp1ABxupMO
— Jack Surrun awayt (@jacksurrun awayt) February 6, 2025
nn”},{“_type”:”model.dotcomrfinishering.pageElements.TextBlockElement”,”html”:”
While the Financial Times points out that the feebleening pound pushed UK stocks to a novel write down.
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Friday’s FINANCIAL TIMES UK EDITION: Bank of England halves predict for lengthenth as rate cut powers FTSE 100#TomorrowsPapersToday pic.twitter.com/e5iJaNMDEH
— Jack Surrun awayt (@jacksurrun awayt) February 6, 2025
nn”}],”attributes”:{“pinned”:deceptive,”keyEvent”:real,”summary”:deceptive},”blockCreatedOn”:1738912561000,”blockCreatedOnDiscarry out”:”02.16 EST”,”blockLastUpdated”:1738912624000,”blockLastUpdatedDiscarry out”:”02.17 EST”,”blockFirstPublished”:1738912625000,”blockFirstPublishedDiscarry out”:”02.17 EST”,”blockFirstPublishedDiscarry outNoTimezone”:”02.17″,”title”:”UK stagflation dreads – what the papers say”,”contributors”:[],”primaryDateLine”:”Fri 7 Feb 2025 04.10 EST”,”secondaryDateLine”:”First unveiled on Fri 7 Feb 2025 02.16 EST”},{“id”:”67a5a8828f084d6b0f39ae39″,”elements”:[{“_type”:”model.dotcomrfinishering.pageElements.TextBlockElement”,”html”:”
Good morning, and greet to our rolling coverage of business, the financial tagets and the world economy.
“,”elementId”:”b586fdb0-11ba-4578-aa7d-2c68aefe31ed”},{“_type”:”model.dotcomrfinishering.pageElements.TextBlockElement”,”html”:”
Stagflation dreads are rippling thraw the City today after the Bank of England slashed its lengthenth predicts on Thursday, and lifted its inflation predict.
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As we covered yesterday, the Bank halved its predict for GDP lengthenth this year to equitable 0.75%, down from 1.5% foreseeed three months ago.
“,”elementId”:”1e8dcd39-5a1a-4d07-a30c-65429051cf80″},{“_type”:”model.dotcomrfinishering.pageElements.TextBlockElement”,”html”:”
In another blow to the rulement, the Bank foreseeed inflation would peak at 3.7% procrastinateedr this year, proximately twice its 2% concentrate, as rising energy prices push up the cost of living aacquire.
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Despite this gloomy outwatch, the Bank cut interest rates, arguing that a “persistd, gradual easing of underlying inflationary prescertains” is underway in the UK economy.
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Weaker lengthenth and rising inflation is a harmful combination for chancellor Rachel Reeves; it could be kryptonite to her hopes of sticking to the fiscal rules lhelp out in last years budget.
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As our economics editor Heather Stewart elucidates
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Economic output is foreseeed to have reduceed by 0.1% in the final three months of 2024 and broadened by equitable 0.1% in the current three-month period – skinnyly skirting a economic downturn, detaild as two successive quarters of degrade. The Bank advises productivity, which Reeves awfilledy wants to better, has degraded.
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If the autonomous Office for Budget Responsibility (OBR) gets a analogous watch, it could originate a acute downgrade to its lengthenth predicts when these are unveiled on 26 March, from the 1.9% it was foreseeing in October.
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Whether that wipes out Reeves’s room for manoeuvre aacquirest her fiscal rules depfinishs on how the OBR assesses the extfinisheder-term outwatch. Market foreseeations of reduce rates in the UK may endure down on the rulement’s cost of borrotriumphg, helping to offset some of the impact on the unveil finances from feebleer lengthenth.
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But the MPC’s gloomy prognosis sits in stark contrast to Reeves’s choosedly upbeat messaging on lengthenth in recent week
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BoE ruleor Andrew Bailey also alerted that while he is very encouraging of Reeves’s lengthenth agfinisha, meacertains such as a novel Heathrow runway or novel reservoirs won’t shift the lengthenth dial in the unwiseinutive term.
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Yesterday’s rate cut conveys down Bank Rate to 4.5%, and the City money tagets foresee at least two more quarter-point cuts by the finish of the year.
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But if inflation pushes higher, those predicts could come under prescertain.
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Van Luu, head of currency and mended income solutions strategy at Russell Investments,
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Making policy in a “stagflation” environment with high inflation and conciseageluster lengthenth is a createidable dispute. Tax hikes and elevates in administered prices will at least temporarily incrmitigate price prescertains.
n
The equilibrium between the inflationary impulse and a sconciseageening jobs taget will choose the pace of further rate cuts in 2025.
n
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The agfinisha
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7am GMT: Halifax house price index for January
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7am GMT: German trade data for December
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1.30pm GMT: US non-farm payroll for January
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Key events
Reuters: Shein poised to slash valuation to $50bn in London IPO
Online speedy-style retailer Shein is set to cut its valuation in a potential London cataloging to around $50bn, Reuters is increateing,citing three people with understandledge of the matter.
That’s proximately a quarter less than the company’s 2023 fundraising appreciate, echoing various headtriumphts hitting Shein.
Reuters elucidates:
The company’s business prospects have come under a cboisterous in recent days after the Trump administration shelp it would shut the “de minimis” duty exemption in the United States, finishing an convey in rule that had helped Shein uphold prices low.
The meacertain’s removal could hurt Shein’s profitability and push up product prices in the U.S., its hugegest taget, analysts and industry experts have shelp.
Shein is also facing disputes in Europe, where parcels sent from China by online retailers will face innervous novel customs administers as part of a crackdown by the European Comleave oution on “hazardous products” flooding the EU taget.
Hong Kong’s pguide to the WTO (see earlier post) comes as Donald Trump’s novel trade war is further blurring the lines between Hong Kong and Beijing.
This is dangerening to erode the city’s main selling point as a global financial hub, increates Bloomberg, elucidateing:
When Trump slapped a 10% levy on China this week, that action for the first time also applied to Hong Kong excellents, after the plivent in 2020 signed an executive order to erase the city’s exceptional privileges.
One day procrastinateedr, the US Postal Service put a prohibit on incoming Chinese parcels that also swept up the commerce cgo in, before reversing course hours procrastinateedr.
The economic predicters at EY Item Club foresee UK house prices will probably onle write down a “unpretentious betterment” atraverse the course of 2025.
Follotriumphg January’s 0.7% jump in prices, Matt Swannell, chief economic advisor to the EY ITEM Club, says:
“Early indicators of housing insist point to another month or two of decent carry outance for the housing taget ahead of the Stamp Duty alters.
But over 2025 as a whole, we leank that the housing taget will show only a unpretentious betterment, given the Bank of England’s gradual and pinsolentnt approach will see interest rates descfinish sluggishly aacquirest a backdrop of stretched housing affordability.”
Hong Kong to grumble to WTO over US tariffs
Hong Kong will file a grumblet with the World Trade Organisation over tariffs imposed by Donald Trump earlier this week.
The Hong Kong Special Administrative Region (HKSAR) rulement today shelp it was unequitable that the US was imposing an insertitional 10% on products of Hong Kong, so it has choosed to grumble to the WTO.
A HKSAR spokesman shelp:
“The US’ meacertains are grossly inreliable with the relevant WTO rules and disthink about our status as a split customs territory as stipuprocrastinateedd in Article 116 of the Basic Law and recognised by the WTO. The HKSAR Government will createpartner start procedures in accordance with the WTO Dispute Settlement Mechanism aacquirest the US’ unreasonable meacertains to deffinish our legitimate rights.”
The spokesman inserted that Hong Kong is “a staunch helper” of the rule-based multiprocrastinateedral trading system, and encouraged the US to get instant actions to rectify the situation.
The grumblet comes three days after Donald Trump imposed an insertitional 10% tariff on excellents from China, prompting Beijing to retaliate with tariffs on some US convey ins.
India originates first interest rate cut since 2020
Earlier today, India’s central prohibitk cut its benchtag interest rate for the first time in proximately five years.
The Reserve Bank of India reduceed the repo rate, which the central prohibitk lfinishs to commercial prohibitks, by a quarter of one percent, to 6.25%.
The shift comes as officials try to reverse sluggishing economic lengthenth in the world’s most populous country.
Announcing the rate cut, the RBI’s monetary policy promisetee say:
The global economy is lengthening below the historical mediocre even though high frequency indicators advise resilience amidst persistd expansion in world trade. The world economic landscape remains challenging with sluggisher pace of disinflation, lingering geopolitical tensions and policy uncertainties. The strong dollar, inter alia, persists to strain emerging taget currencies and raise volatility in financial tagets.
On the domestic front, as per the First Advance Estimates (FAE), genuine gross domestic product (GDP) is assessd to lengthen at 6.4 per cent (y-o-y) in 2024-25 helped by a recovery in personal consumption. On the provide side, lengthenth is helped by the services sector and a recovery in agriculture sector, while tepid industrial lengthenth is a drag.
UK rulement speed ups push for hoter rented homes
Elsewhere in the property world, the UK rulement is forcing personal landlords in England and Wales to better the energy carry outance ratings of their properties.
Under the set up, by 2030 all personal landlords will be needd to encounter a higher standard of Energy Percreateance Certificate (EPC) C or equivalent in their properties – up from the current level of EPC E.
Currently, 48% of personal rented homes in England encounter this standard.
Ministers say the set up could save personal rgo ins £240 per year on mediocre on their energy bills.
Energy Secretary Ed Miliprohibitd shelp:
For years tenants have been aprohibitdoned and forgotten as opportunities to deinhabitr hot homes and reduce energy bills have been disthink abouted and disthink aboutd.
Landlords have troubles, though. Ben Beadle, chief executive of the National Residential Landlords Association, says:
“We all want to see rented homes as energy efficient as possible, but that will need a rational set up to accomplish this.
The chronic unwiseinutiveage of tradespeople to carry out energy efficiency toils needs to be insertressed, aextfinishedside a concentrateed financial package to help spendments in the toil needd as called for by the Committee on Fuel Pcleary and Citizens Advice.
Importantly a rational timetable is needed if the 2.5 million personal rented homes, which will not currently encounter the Government’s advised standards, are to be betterd.”
BoE ruleor calls for US to help World Bank and IMF
The ruleor of the Bank of England has encouraged Donald Trump’s administration to uphold US help for the World Bank and the International Monetary Fund.
Andrew Bailey tbetter the BBC he was “follotriumphg excessively shutly” whether the Trump administration will alter its help for the two bodies, which are both convey inant global economic institutions.
Sources in Washington shelp the two institutions were caught by a White House executive order for a verify of United Nations (UN) and other international organisations.
Bailey shelp it is “very convey inant that we don’t have a fragmentation of the world economy”.
He inserted:
“A huge part of that is that we have help and joinment in the multiprocrastinateedral institutions, institutions enjoy the IMF, the World Bank, that help the operation of the world economy. That’s repartner convey inant.”
UK house prices: the regional picture
Despite the 0.7% elevate in UK house prices in January, the rate of annual property price inflation sluggished in two thirds of the UK’s nations and regions at the commence of the year.
Halifax increates that:
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Northern Ireland persists to have the strongest annual property annual price lengthenth in the UK, though at +5.9% in January this mitigated ponderably assessd to December (+7.3%). Properties in Northern Ireland now cost an mediocre of £205,473.
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House prices in Wales were up +3.6% assessd to the previous year, with properties now costing an mediocre of £227,397.
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Scotland once aacquire saw a reduce elevate in house prices assessd to the rest of the UK, with properties in the country now worth an mediocre of £210,690, +2.4% more than the year before.
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In England, the North East has overgetn the North West as the region with the strongest annual property price lengthenth, up +5.2% assessd to the previous year, with properties now costing an mediocre £178,696. This is the first time since September 2023 that the North West has not topped the table of English regions for annual lengthenth.
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London preserves the highest mediocre house price in the UK, at £548,288, up +2.8% assessd to last year
January house prices started off with a 0.7% incrmitigate on last month’s festive efforts, making the mediocre house price, according to lfinisher @HalifaxBank now £299,138. That shelp, the annual rate of inflation sluggished for two thirds of all regions, Northern Ireland however remains the… pic.twitter.com/2rxUUcwIfW
— Emma Fildes (@emmafildes) February 7, 2025
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January house prices started off with a 0.7% incrmitigate on last month’s festive efforts, making the mediocre house price, according to lfinisher @HalifaxBank now £299,138. That shelp, the annual rate of inflation sluggished for two thirds of all regions, Northern Ireland however remains the… pic.twitter.com/2rxUUcwIfW
— Emma Fildes (@emmafildes) February 7, 2025
UK house prices elevate in January
Economic lengthenth may be sluggishing, but UK house prices persists to elevate – according to lfinisher Halifax.
It has increateed that house prices incrmitigated by 0.7% in January, follotriumphg a dip of 0.2% in December, lifting the mediocre price to a novel write down high of £299,138 (on Halifax’s index).
On an annual basis, house prices were 3% higher – down from 3.4% in November.
Amanda Bryden, head of mortgages at Halifax, says the UK housing taget commenceed the year “on a selectimistic notice”.
She advises that some buyers may have been enthusiastic to elude incrmitigates in stamp duty coming this spring in England and Northern Ireland.
Affordability is still a dispute for many would-be buyers, but the taget’s resilience is noticeworthy. There’s strong insist for novel mortgages and lengthenth in lfinishing.
With a stamp duty incrmitigate looming, some of this insist may have come from first-time buyers enthusiastic to finish transactions before the finish of March.
Bryden foresees that UK mortgage rates are foreseeed to hover between 4% and 5% this year, inserting:
“Despite geopolitical uncertainties, and waning user confidence, other key indicators watch equitablely selectimistic for the housing taget. The Bank of England has made its first base rate cut of the year, and there are probably more to come.
Househbetter acquireings are foreseeed to persist outpacing inflation – albeit that gap may skinny – easing some of the financial prescertain still being felt from the cost-ofliving squeeze
UK stagflation dreads – what the papers say
Bank of England ruleor Andrew Bailey tbetter increateers that he doesn’t use the word ‘stagflation’, arguing that it doesn’t have a “exact unbenevolenting”.
Some of the UK novelspapers disconcur – with stagflation dreads materializeing on cut offal of today’s front pages.
The Guardian points out that the chancellor’s set ups for lengthenth suffered a double blow yesterday, with the Bank signalling that people would face a new squeeze on living standards from rising inflation even as the economy shighed.
Friday’s GUARDIAN: Fears over stagflation as Reeves lengthenth set up suffers double blow#TomorrowsPapersToday pic.twitter.com/TKJJOfGtSa
— Jack Surrun awayt (@jacksurrun awayt) February 6, 2025
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The Daily Mail points out that Britain last suffered a bout of stagflation – soaring prices and descfinishing lengthenth – in the 70s.
Friday’s DAILY MAIL: New era of stagflation#TomorrowsPapersToday pic.twitter.com/NJSyY0t5YO
— Jack Surrun awayt (@jacksurrun awayt) February 6, 2025
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The Daily Express calls the lengthenth predicts a ‘wake-up call’ for Reeves.
Friday’s DAILY EXPRESS: Reeves ‘wake up call’ on ‘putrid’ figures#TomorrowsPapersToday pic.twitter.com/qp1ABxupMO
— Jack Surrun awayt (@jacksurrun awayt) February 6, 2025
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While the Financial Times points out that the feebleening pound pushed UK stocks to a novel write down.
Friday’s FINANCIAL TIMES UK EDITION: Bank of England halves predict for lengthenth as rate cut powers FTSE 100#TomorrowsPapersToday pic.twitter.com/e5iJaNMDEH
— Jack Surrun awayt (@jacksurrun awayt) February 6, 2025
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Introduction: Stagflation dreads elevate after gloomy Bank predicts
Good morning, and greet to our rolling coverage of business, the financial tagets and the world economy.
Stagflation dreads are rippling thraw the City today after the Bank of England slashed its lengthenth predicts on Thursday, and lifted its inflation predict.
As we covered yesterday, the Bank halved its predict for GDP lengthenth this year to equitable 0.75%, down from 1.5% foreseeed three months ago.
In another blow to the rulement, the Bank foreseeed inflation would peak at 3.7% procrastinateedr this year, proximately twice its 2% concentrate, as rising energy prices push up the cost of living aacquire.
Despite this gloomy outwatch, the Bank cut interest rates, arguing that a “persistd, gradual easing of underlying inflationary prescertains” is underway in the UK economy.
Weaker lengthenth and rising inflation is a harmful combination for chancellor Rachel Reeves; it could be kryptonite to her hopes of sticking to the fiscal rules lhelp out in last years budget.
As our economics editor Heather Stewart elucidates
Economic output is foreseeed to have reduceed by 0.1% in the final three months of 2024 and broadened by equitable 0.1% in the current three-month period – skinnyly skirting a economic downturn, detaild as two successive quarters of degrade. The Bank advises productivity, which Reeves awfilledy wants to better, has degraded.
If the autonomous Office for Budget Responsibility (OBR) gets a analogous watch, it could originate a acute downgrade to its lengthenth predicts when these are unveiled on 26 March, from the 1.9% it was foreseeing in October.
Whether that wipes out Reeves’s room for manoeuvre aacquirest her fiscal rules depfinishs on how the OBR assesses the extfinisheder-term outwatch. Market foreseeations of reduce rates in the UK may endure down on the rulement’s cost of borrotriumphg, helping to offset some of the impact on the unveil finances from feebleer lengthenth.
But the MPC’s gloomy prognosis sits in stark contrast to Reeves’s choosedly upbeat messaging on lengthenth in recent week
BoE ruleor Andrew Bailey also alerted that while he is very encouraging of Reeves’s lengthenth agfinisha, meacertains such as a novel Heathrow runway or novel reservoirs won’t shift the lengthenth dial in the unwiseinutive term.
Yesterday’s rate cut conveys down Bank Rate to 4.5%, and the City money tagets foresee at least two more quarter-point cuts by the finish of the year.
But if inflation pushes higher, those predicts could come under prescertain.
Van Luu, head of currency and mended income solutions strategy at Russell Investments,
Making policy in a “stagflation” environment with high inflation and conciseageluster lengthenth is a createidable dispute. Tax hikes and elevates in administered prices will at least temporarily incrmitigate price prescertains.
The equilibrium between the inflationary impulse and a sconciseageening jobs taget will choose the pace of further rate cuts in 2025.
The agfinisha
-
7am GMT: Halifax house price index for January
-
7am GMT: German trade data for December
-
1.30pm GMT: US non-farm payroll for January
