UK (Commonwealth) _ The major central banks in the west are expected to maintain a hold on interest rates this week due to concerns over persistently rising inflation, even as anticipations for significant reductions in borrowing costs in 2019 rise.
The US Federal Reserve, Bank of England (BoE), and European Central Bank are anticipated to maintain interest rates at their present restrictively high levels during a crucial week for the global economy in order to guarantee that inflation continues to decline from its highest points in decades.
Financial markets, however, anticipate interest rates to be lowered in 2019 due to declining inflation and the burden that high borrowing costs are placing on economic development, increasing the likelihood of recessions on both sides of the Atlantic.
They probably have similar messages at their core. Although there has been good success in lowering inflation, Raphaël Olszyna-Marzys, an international economist at J Safra Sarasin Sustainable Asset Management, stated that they cannot afford to get complacent.
According to investment bank Nomura, trading in financial markets indicates the likelihood of rate reduction by the Fed and the ECB of up to 1.4 percentage points by the end of 2024, while anticipations for a roughly one percentage point rate drop by the BoE have increased.
In reaction to the UK’s continuously high rate of inflation, policymakers at Threadneedle Street have downplayed the likelihood of rate reduction that the financial markets had anticipated, saying instead that interest rates in the UK will need to be maintained at the present level of 5.25% for a long length of time.
The governor of the Bank, Andrew Bailey, stated last month that although the consumer price index dropped from 6.7% in September to 4.6% in October, it was still “far too early to be thinking about rate cuts” and that there was “no room for complacency” over inflation.
It would be “premature to conclude with confidence,” according to US Fed Chair Jerome Powell, that the world’s most powerful central bank had successfully adopted a suitably restrictive approach to control inflation earlier this month. “If it is deemed necessary, we are ready to tighten policies even further, “he stated.
The world’s largest economy added 199,000 jobs in November, up from 150,000 the month before, according to data released by the US labor market on Friday. The heads of central banks have been closely observing statistics on the labor market for indications that wage growth is slowing down to levels that align with their 2% inflation objectives.
The average weekly wage is predicted to have grown by 7.7% annually in the three months leading up to October, from 7.9% in the three months leading up to September, according to data released by the UK jobs market on Tuesday.
The National Institute of Economic and Social Research’s director, Jagjit Chadha, stated that central banks were taking a “wait and see” stance in order to prevent inflationary pressures from solidifying.
Basically, we’ve already done the hard work. According to him, the only thing left to do is watch how the economy reacts to the inflation. Prepare for the workday by using our links to the business news and insight you require each morning.
Surveys, however, show that economic development is slowing down in developed countries as firms and consumers struggle with rising interest rates and a steady rise in living expenses that reduces their purchasing power.
According to city analysts, official numbers that are expected on Wednesday will reveal that the British economy completely collapsed in October. A 0.1% decline in GDP is anticipated, compared with a 0.2% gain in September.
With a decline to 2.4% in November, the eurozone’s inflation rate has returned to within striking distance of the ECB’s 2% objective, and Germany’s economy is on the verge of recession as part of a broader regional contraction.
