During each trip, in each speech, on the header of each official email, Rishi Sunak reminds us: in January, the British Prime Minister made five major promises to his fellow citizens. The first of these was “Halve inflation” by the end of 2023 (its other pledges were for economic growth, lower public debt, reducing hospital waiting lists and stopping illegal immigration). When he spoke, inflation was 10.5%. Seven months later, it has fallen, but rather less than in the other major economies. Thus, in June, it remained at 7.9% over twelve months, which made it the strongest of the G7 countries.
Like Europe and the United States, the United Kingdom is struggling with a violent surge in prices. But even more than elsewhere, the phenomenon seems persistent. In an attempt to curb it, the Bank of England (BoE) is stepping up interest rate hikes. It started before the others, making its first increase in December 2021, where the American Fed waited for March 2022 and the European Central Bank for July 2022.
However, she is not done. Thursday, August 3, for the fourteenth time in a row, it raised its key rate, this time from 5% to 5.25%, a level that had not been reached since 2008. Never, since its creation, in 1694, the British monetary institution had made so many successive increases. As a symbol of the country’s economic fragility, the household equipment brand Wilko, which owns 400 stores, announced Thursday that it would file for bankruptcy. Nearly 12,000 jobs are threatened.
The tone adopted by the BoE is however a little more optimistic than in previous months. “In June, inflation fell, which is good news, and it will continue to do so in the months to come”, says Andrew Bailey, its governor. According to him, it will fall to about 5% in October, which should allow Mr. Sunak to honor his promise. Within a year, it should be down to 3%.
The impact comes in particular from the gas
Mr. Bailey also points out that the worst-case scenario, which the Bank of England predicted in the fall of 2022, has not materialized. “The economy has been stronger than expected. (…) In November [2022], we expected a long, shallow recession. It didn’t happen. » Instead, the UK recorded weak growth, around 0.2% per quarter for the first half as a whole. Because of this quasi-stagnation, the country is experiencing a better dynamic than that of Germany, but less good than that of France, and clearly less good than that of the United States.
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