Britain’s economy is currently experiencing cooling inflation, resilient wage growth, and better-than-expected performance post-Donald Trump’s tumultuous era. However, this positive outlook may be short-lived as economists predict a sharp inflation increase next month, with expectations that inflation could reach 4% by summer. April poses challenges for households with rising energy bills and other regulated prices. The Bank of England anticipates a potential rate hike to combat inflation, highlighting the need for a cautious approach.
Despite the UK economy outperforming expectations with a 0.5% growth in February, concerns over the impact of Trump’s trade war loom large. The global backdrop suggests a higher risk of a UK recession in the second half of the year due to increased trade openness. Uncertainty remains regarding the short-term inflation effects of the trade war, with potential shifts in supply chains and tariffs impacting prices.
Looking ahead, the economic damage from the trade war is expected to hinder growth, potentially outweighing the short-term inflationary pressures. Calls for significant interest rate cuts to support the economy are gaining traction, with expectations of rate cuts in the coming months. The Bank of England faces mounting pressure to adjust interest rates in response to the deteriorating global outlook. Financial markets indicate a high probability of rate cuts, signaling the challenges of maintaining current interest rates amidst the evolving economic landscape.
