'Weak' economy stabilizes as interest rates rise, warns BCC

Rishi Sunak and Jeremy Hunt's hidden tax raid left the average worker's real after-tax salary slightly higher than 2019 levels. Photo: Simon Walker/10 Downing Street

A 'stable line' is expected in Britain as rising interest rates will send the economy into a prolonged recession comparable to the oil shocks of the 1970s, according to the British Chamber of Commerce (BCC). ) warned.

The UK is «on course to avoid a technical recession, but growth is likely to remain so weak that it will be hard to tell the difference,» the business group said, lowering growth forecasts.

“Permanently low economic growth of this kind comparable to previous periods of economic turmoil and recession, such as the oil crisis of the 1970s and the financial crash of 2008,” the BCC said.

It comes after the think tank warned that Rishi Sunak will have to fight in the next election amid the worst drop in economic growth. recorded household incomes, adding that no government has ever held power after such weak growth.

The Resolution Foundation said typical working-age household incomes in 2024-25 will be 4% lower in real terms, than in 2019-20, as rising inflation erodes household purchasing power.

Persistent inflation in 1708

The think tank said the scale of the fall was unprecedented in peacetime. «Never in living memory have families become so poorer during parliamentary hours,» the report says.

The Foundation said a covert raid by Prime Minister and Chancellor Jeremy Hunt also resulted in an average after-tax wages in 2024 barely exceeded those in 2019, adjusted for inflation.

The Foundation says there was good news for savers, especially those who fully own their home. The fund said the group, which has more savings and little debt, will «better off than ever» thanks to higher Bank of England interest rates that have risen from 0.1% in 2021 to 5.25% today.< /p>

The Fund expects total interest income on savings to reach £90bn in 2024-2025, compared to just £5bn in 2021-22. It says people under the age of 35 are projected to see a net increase in savings of an average of £700 by 2024-2025, while those aged 65 to 74 will benefit from an increase of an average of £3,600 – six times that.

Adam Corlett of the Resolution Foundation said: “The worst of the cost-of-living crises may be behind us, but except for those with significant savings, the near future is preparing Britain for a stagnant standard of living , not a boom period. ”

0308 Bank rate reached 5.25

BCC believes interest rates will fall very slowly, the group predicts, from an expected peak of 5.5% to 5.25% next year and 4.5% in 2025, as strong core inflation and wage growth continue to weigh on the Bank of England.

Rising interest rates and falling house prices threaten to undermine banks and the overall economic recovery, according to an international financial institution.

The Financial Stability Board (FSB) said the bankruptcies of banks including Credit Suisse and Silicon Valley Bank earlier this year show the system is under strain as businesses, households and lenders face the unexpected burden of higher borrowing costs. .

“The recovery of the global economy is losing momentum, and the effects of higher interest rates in the largest economies are increasingly being felt. So far, the global financial system has generally remained resilient, not least thanks to strong bank capital buffers created as a result of the post-crisis G20 reforms,” said Klaas Knoth, FSB chairman and president of the Dutch central bank.

However, he warned that higher rates and bank failures «has exposed vulnerabilities in individual institutions related to poor governance and management of liquidity and interest rate risk» and the crises have «become stark reminders of the speed with which vulnerabilities can be exposed in the current situation.»< /p> Sluggish Global Growth — Annual Global Growth Rate

The rise in interest rates is already palpable. Business activity in the UK's dominant service sector fell last month for the first time since January as higher interest rates dampened consumer and corporate demand, a closely monitored survey showed.

The S&P Global Purchasing Managers' Index ((PMI) fell to 49.5 in August from 51.5 in July, a seven-month low.Any score below 50 indicates a decline in activity.

Tim Moore, director of economics at S&P Global, said household finances were limiting selling opportunities.»< /p>

Backlogs fell by the most in three years as fewer orders came in and businesses responded by hiring at the slowest pace in five months.< /p>

Eurozone PMI shows that the private sector in the currency area is shrinking at the fastest rate since the end of 2020.

Alexander Valentin of Oxford Economics said this indicates that the eurozone is headed for a recession. .