Stagflation concerns are spreading through the City today after the Bank of England dramatically lowered its growth forecasts while raising its inflation outlook.
As reported yesterday, the Bank slashed its GDP growth prediction for this year to just 0.75%, down from 1.5% expected three months ago.
Adding to the government’s woes, the Bank now expects inflation to peak at 3.7% later this year—nearly double its 2% target—as surging energy prices drive up living costs once again.
Despite this bleak forecast, the Bank decided to cut interest rates, arguing that there is evidence of a “continued, gradual easing of underlying inflationary pressures” in the UK economy.
The combination of slower growth and rising inflation presents a serious challenge for Chancellor Rachel Reeves, potentially jeopardizing her efforts to adhere to the fiscal rules outlined in last year’s budget.
Global stocks moved sideways as investors awaited key US payroll data, weighing the possibility that a broader trade war might be avoided.
In Asia, Hong Kong’s Hang Seng Index reached a three-month high and is on track for a 4% weekly gain, its strongest performance in weeks, driven by DeepSeek-led AI investments.
China’s blue-chip index rose by 0.4% after hitting a one-month peak, pushing MSCI’s broadest Asia-Pacific index outside Japan to its highest level since mid-December.
On Wall Street, the Dow Jones Industrial Average declined by 0.3% to 44,747.63, while the S&P 500 increased by 0.4% to 6,083.57 and the Nasdaq Composite advanced by 0.5% to 19,791.99.
In the bond market, the yield on benchmark 10-year US Treasury notes edged up to 4.44% from 4.42% late Wednesday.
