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Bank of England Keeps Key Interest Rate at 5.25% Despite Inflation Falling

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Bank of England

The Bank of England maintained its main interest rate at a 16-year high of 5.25% on Thursday, despite inflation falling to its target of 2%, with several policymakers warning that a premature decrease may spark another wave of price increases.

Seven of the nine members of the bank’s ruling Monetary Policy Committee voted against a rate drop for the second week in a row, while two supported one. Interest rates have been constant since August, following a series of rises.

The statement accompanying the vote made it plain that there was disagreement on the forecast for inflation, with some expressing concern about continued significant price increases in the services sector, the key driver of the British economy.

“It’s good news that inflation has returned to our 2% target,” said Bank of England Governor Andrew Bailey, who voted to maintain current policy. “We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.”

The decision will likely dismay the ruling Conservative Party ahead of the United Kingdom’s general election in two weeks. Prime Minister Rishi Sunak would have seen a cut as good economic news, especially if it came with a drop in mortgage rates.

Upcoming UK Election

The panel maintained that the upcoming election, which the main opposition Labour Party, led by Keir Starmer, is generally expected to win, did not influence its conclusion. It stated that the decision was, as always, based on meeting the 2% inflation objective “sustainably in the medium term.”

Economists anticipate a rate decrease is on the way, either at the bank’s next policy making meeting in August or the one following in September. They expect clear evidence by then that inflation will remain close to the target for the next year or two.

“We continue to believe that the MPC will ease restrictive policy beginning in the summer and deliver two rate cuts this year,” said Sanjay Raja, Deutsche Bank’s senior U.K. economist.

The reduction in the primary inflation measure to a near three-year low of 2% in the year to May does not imply that prices are falling; rather, they are rising at a slower rate than they have in recent years during a cost-of-living crisis that has resulted in reduced living standards for millions in Britain.

Central banks worldwide dramatically increased borrowing costs from the lows seen during the coronavirus pandemic, when prices began to rise, first due to supply chain issues accumulated during the pandemic and then due to Russia’s invasion of Ukraine, which pushed up energy costs.

Bank of England unduly cautious

Higher interest rates, which cool the economy by making borrowing more expensive, have helped to reduce inflation, but they have also weighed on the British economy, which has hardly expanded since the pandemic’s recovery.

Critics of the Bank of England argue that it is unduly cautious about inflation and that keeping interest rates too high for too long will put undue strain on the economy. It is an accusation that has also been leveled at the United States Federal Reserve, which has held interest rates constant in recent months.

“Given that the U.K. has moved onto a milder inflationary trajectory, rate setters remain overly cautious about the likelihood of loosening policy, risking impeding the U.K.‘s growth prospects,” said Suren Thiru, economics director at The Institute of Chartered Accountants in England and Wales.

Some central banks, like the European Central Bank, have begun to decrease interest rates as inflationary pressures have subsided. On Thursday, the Swiss National Bank cut its main interest rate by a quarter of a percentage point to 1.25%.

Source: The Associated Press

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June UK Inflation Remains at the 2% Target, with a Potential rate cut on the “Knife Edge.”

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Inflation
Kin Cheung

(VOR News) – Inflation in the United Kingdom stayed constant at the target rate of 2% that was established by the Bank of England in the year leading up to June, as indicated by official figures that were issued on Wednesday.

It is possible that this result will be sufficient for policymakers to accomplish their goal of lowering the cost of borrowing money the following month.

The Office of National Statistics reports that the hospitality business, which includes establishments such as hotels and restaurants, was responsible for the most substantial upward contribution to the annualized inflation rate.

A number of analysts are of the opinion that the increased pricing can be attributable to the fact that Taylor Swift is now on tour in the United Kingdom.

The clothing and footwear business, which had extensive sales throughout the month, was the sector that made the most substantial contribution to the fall in sales.

When the flat number was compared to June of the previous year, it was slightly higher than what was projected to be the case. In the majority of instances, analysts had anticipated a modest fall to 1.9% of the total economy.

July 2021 was the last time inflation reached 2%.

Before the price increase began. As a result of the Coronavirus pandemic, supply chain concerns initially occurred. The increase in energy costs was attributed to Russia’s invasion of Ukraine. The situation was exacerbated by both of these factors.

The financial markets are anticipating that the decision about whether or not the Bank of England will decrease its main interest rate from 5.25% on August 1 will be something of a close call. Both of these decisions are expected to be made on August 1.

There are a number of policymakers who continue to voice concern regarding the extent of price rises in the vital services sector as well as the rate of wage increases. Both of these factors significantly increase the likelihood of a return in inflation in the event that interest rates are decreased too recently.

The deputy chief economist of abrdn, which was formerly known as Aberdeen Asset Management, stated that “Today’s inflation report will keep the Bank of England’s August rate decision on a knife edge because of the uncertainty surrounding it.”

Abrdn employee Luke Bartholomew made this inflation statement.

“More fundamentally, the persistent stickiness of service inflation will leave the Bank wondering how long inflation will remain at the 2% target,” according to the official statement.

In order to battle the quick development in inflation, which reached a peak of more than 11% in late 2022, the Bank of England, along with the Federal Reserve of the United States and other central banks, swiftly increased interest rates in late 2021 from near zero. This was done in order to counteract the rapid growth in inflation.

The British economy, on the other hand, has been slowed down by increased interest rates, which have contributed to the reduction of inflation by making it more expensive to borrow money.

There has been very little improvement in the economy of the United Kingdom since the recovery from the epidemic.

The Prime Minister of the United Kingdom, Keir Starmer, has underlined that the key purpose of his Labour government would be to increase the pace of economic growth in the United Kingdom.

This is the primary objective that he desires to achieve. An statement addressing the goals that his government has for the coming year is going to be made later on Wednesday and will be made public.

According to Starmer, the measures that were disclosed in the King’s Speech to Parliament will “create wealth for people up and down the country” and “take the brakes off Britain” by stimulating economic growth. This is what Starmer believes will happen.

SOURCE: USN

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Exit Polls in UK Show Labour Party Headed for Landslide Victory

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Exit Polls in UK Show Labour Party Headed for Landslide Victory

An exit poll indicated that, following 14 years of political and economic turmoil, voters would punish the governing Conservatives by handily electing the UK’s Labour Party to a landslide victory in Friday’s parliamentary election.

Moments after the polls closed, the results of the survey showed that Keir Starmer, the head of the center-left Labour party, will become the next prime minister of the nation. He will confront a jaded public that is eager for change in the face of a depressing economy, growing institutional mistrust, and a deteriorating social cohesion.

The Conservatives were in shock by their historic setback, which would leave the party in disarray and probably lead to a leadership contest against Prime Minister Rishi Sunak. Thousands of election workers were tallying millions of ballot papers at counting stations across the nation.

In the last hours before voting closed, London voter James Erskine expressed optimism for change, saying, “Nothing has gone well in the last 14 years.” “I just think there could be a huge change here, and that’s what I’m hoping for.”

Reform UK leader Nigel Farage stokes controversy

Though many of the same populist undercurrents flow in Britain, the proposed result seems to defy recent rightward electoral changes in Europe, especially in France and Italy.

With his party’s anti-immigrant “take our country back” stance, Reform UK leader Nigel Farage has stoked controversy and undermined support for the Conservatives, who already faced bleak chances.

The exit poll indicates that Labour will take around 410 seats in the 650-seat House of Commons, while the Conservatives will hold 131 seats. The Tories would have the fewest seats in their almost 200-year history, which would leave the party in chaos.

Some smaller parties, such as the moderate Liberal Democrats and Reform UK, seemed to have done well, which may be an indication of the unstable public mood and dissatisfaction with the system. One significant unanswered question was whether Farage’s hard-right party would be able to leverage its popularity to win more than a few seats in Parliament.

Labour Party politicians wary

The survey revealed “a catastrophic result in historic terms for the Conservative Party,” according to former Conservative leader William Hague. Nevertheless, Labour Party politicians were wary due to years of disillusionment.

Deputy leader Angela Rayner told AP News, “The exit poll is encouraging, but obviously we don’t have any of the results yet.”

Ipsos, a pollster, asks participants at a number of polling places to complete a duplicate ballot that represents their voting behavior. Typically, it offers a trustworthy but imprecise forecast of the result.

British voters cast paper votes, writing their selections in pencil, which are subsequently tallied by hand. We anticipate having final results by Friday morning.

A series of stormy years in Britain, some of which the Conservatives created and some of which they did not, have left many voters with doubts about the future of their nation.

The COVID-19 epidemic, Russia’s invasion of Ukraine, and the United Kingdom’s withdrawal from the European Union all hurt the economy, yet lockdown parties hosted by then-prime minister Boris Johnson and his staff infuriated the public.

Source: AP

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Former Top Northern Irish Politician Jeffrey Donaldson To Stand Trial Over Alleged Sex Offenses

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Jeffery Donaldson | CNN Image

Jeffrey Donaldson, the former head of Northern Ireland’s most famous pro-union party, will face trial on charges of previous sex offenses, including one of rape.

Donaldson went before a preliminary inquiry on Wednesday, which agreed to proceed with a trial set for September 10, according to a statement issued to CNN by the Northern Ireland Courts and Tribunals Service (NICTS).

donaldson

Donaldson | CNN image

Former Top Northern Irish Politician Jeffrey Donaldson To Stand Trial Over Alleged Sex Offenses

Donaldson resigned as head of the Democratic Unionist Party (DUP) in March after being accused with 11 sexual charges.

The lawmaker has since been charged with an additional seven counts. The 18 alleged acts include one allegation of rape, 13 charges of indecent assault on a female youngster, and four counts of gross indecency toward a kid.

Donaldson was asked in court whether he wanted to speak about the charges, according to PA Media. “Not at this stage,” he said, according to the news agency.

Eleanor Donaldson, his wife, is also scheduled to stand trial in September. She has been charged with one count of helping and abetting rape, three counts of aiding and abetting assault on a female child, and one count of cruelty to a person under 16.

Donaldson led the DUP from 2019 through much of the contentious Brexit process, frequently expressing his opposition to the Northern Ireland Protocol, a vital component of the Brexit withdrawal agreement that ensured there would be no hard border between Northern Ireland and the Republic of Ireland.

Donaldson and his wife have already denied all claims, according to Irish national network RTÉ on Wednesday.

donaldson

Jeffery Donaldson | CNN Image

Former Top Northern Irish Politician Jeffrey Donaldson To Stand Trial Over Alleged Sex Offenses

Donaldson’s trial was announced as Northern Ireland residents prepared to vote in the UK general election. Northern Ireland, one of the UK’s four devolved nations, has 18 members in the Westminster parliament. Northern Irish politicians can run for a seat in Westminster or the devolved legislature, the Northern Ireland Assembly. Sinn Féin, the leading nationalist party, does not take up their seats in Westminster if elected.

Donaldson was set to run again in the Lagan Valley constituency, but former DUP party colleague Jonathan Buckley has replaced him.

SOURCE – (CNN)

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