The Governor of the Bank of England has said the UK is experiencing a “weak growth environment” as he cautioned over the impact of “global fragmentation” on the world economy. Andrew Bailey, speaking at an event held by think tank Bruegel in Belgium, nonetheless said it was a good thing that inflation had eased faster than previous expectations. He said: “Today, we’re in a period of, frankly, heightened uncertainty – we all know what’s going on around us.”.
Continuing disinflation in the economy – meaning price rises cooling – allowed the Bank to cut interest rates for the third time this month, Mr Bailey said, adding: “Because we are facing a weak growth environment in the UK. “It is quite hard to work out to what extent that weaker growth story is a result of supply-side weakness, or supply-and-demand-side weakness. “The second thing is we are facing a short-run hump in inflation that’s going to go up … nearly all of that comes from administered prices, particularly in the energy market, water and some other public services.”.
The Bank’s Monetary Policy Committee decided to reduce interest rates to 4.5% earlier this month – marking the third time rates have been cut since August last year. However, it painted a gloomy picture for the UK economy by halving its growth forecast for the year and predicting a jump in inflation later on in 2025. The UK economy is set to grow 0.75% this year, down from a previous estimate of 1.5%, before accelerating again in 2026 and 2027, according to the projections.
And new official figures published on Tuesday found that growth in pay for UK workers, excluding bonuses, rose for the third time in a row, with increases seen in both the private and public sector. Mr Bailey said pay growth rose “not quite as much as we were expecting” in the latest data, but that it did not change the Bank’s view that wage increases are likely to slow over the next year. Elsewhere in the wide-ranging talk, the Bank’s chief said: “Fragmentation is bad for global growth, and I do think we have to make that point clear.”.
