No respite as inflation crisis grips the West: Experts warn Bank of England could be forced to tip country into recession
The cost of living crisis gripping the West shows few signs of easing as central banks grapple with runaway inflation.
Figures in the US showed inflation was 8.3% in April – slightly down from the 40-year high of 8.5% in March, but still above the predicted 8.1% by the experts.
And in Germany, it hit 7.1% to 7.8%, the highest since the country’s reunification in 1990, as soaring energy and food prices weighed on the economy.
Price crisis: Figures in the US showed inflation was 8.3% in April – slightly down from the 40-year high of 8.5% in March, but still above the 8 .1% predicted by experts
British experts have warned that the Bank of England will likely have to tip Britain into recession to get inflation under control.
A former member of the Bank’s Monetary Policy Committee (MPC) responsible for setting interest rates said rates needed to keep rising over the next few months to bring soaring prices under control.
Increases generally encourage saving rather than spending, which helps keep inflation in check.
But they are hampering economic activity, as borrowing is more expensive, and would likely reverse the UK’s Covid recovery.
Adam Posen, of the US-based Peterson Institute for International Economics and a member of the MPC between 2009 and 2012, said the Bank needed to act to prevent higher inflation from integrating into workers’ expectations or else they would haggle for higher salaries.
“It would cause a recession if there were to be another rapid rise in interest rates. I’m not saying it’s good,’ he told the Commons Treasury Committee.
“The sad reality is that there is going to have to be an economic downturn in the UK beyond what is already forecast.”
The Bank of England raised interest rates from 0.1% last December to 1%, and the US Federal Reserve raised its key rate in March and May.
The European Central Bank looks set to join in by ending its money-printing stimulus in the third quarter. He could then raise rates.