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Shock as UK set to have faster economic downturn than Europe as ‘turning point’ nears

Andrew Bailey said British households are being battered by a “very large national real income shock” as he delivered the warning. Mr Bailey said the UK economy was at a “turning point” after the Covid pandemic, the energy price surge and the war in Ukraine have contributed to rising inflation and a drop in disposable income.

He also hinted that further interest rate rises could be in store in order to keep inflation down.

The Governor also pledged to act “more forcefully” if inflation rises to 11 percent as forecast in October.

Speaking at a conference in Portugal, Mr Bailey said that the scale of the shock to the British economy would be “very substantial”.

He said: “The UK economy is probably weakening rather earlier and somewhat more than others.

“I think that’s been somewhat evident now for a few months.

“We are being hit by a very large national real income shock, which is coming from outside.

“The scale of the shock is very substantial and in and of itself it will have an effect, a big effect, because it will reduce domestic demand and it will pass through into the labour market and it will pass through into inflation.

“When I look at the UK economy at the moment, it’s very clear that the economy is now starting to slow. 

READ MORE: EU mocked for expensive £1.25 produce as Brexit delivers

One of Mr Bailey’s colleagues Swati Dhingra confirmed that the UK’s slowdown is much more “imminent” than initially thought in written evidence to MPs.

She said: “The UK has done worse than other G7 nations in terms of consumer confidence and inflation.

“Many of the sources of these problems are expected to continue or even accelerate in the short term, such as global factors (including Covid lockdowns, geopolitical uncertainty) and their knock-on effects on to domestic prices.”

She also told MPs that the Bank of England needed to take a “very gradual” approach to increasing interest rates.

Ms Dhingra added that the British exit from the EU had increased food prices by 3 percent.



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