An economic week awaits investors through which the lights are shed on the British economy and it's inflation report. This is so as the curtain will be raised on the outlook for growth and inflation in the coming period amid the UK falling into deeper economic recession during the second quarter, even after the waves of enthusiasm that controlled the financial markets.
The European Central Bank Governor, Mario Draghi, suppressed the financial markets by not announcing the purchase of government bonds of troubled European countries and markets that were strongly attached to them. This occurred after the move carried out by the Federal Bank, which refuted predictions of third round of quantitative easing, and announced that it is ready to move if needed.
Last week, the European Central Bank installed the benchmark interest rate at 0.75%. The Bank of England also set the benchmark interest rate at 0.50% and maintained asset purchase program at levels of 375 billion pounds to support the economy, which took place in a recession for the third quarter in a row during the second quarter.
The most important event which is also expected to take place this week is the quarter inflation report for the British economy in August, which is expected to give us signs to find out what would be Bank of England’s next step, after the last month’s expansion of the plan to buy assets worth 50 billion pounds to levels of 325 billion pounds. The report will focus on the slowing of the global recovery and the escalation of tension in financial markets because of sovereign debt crisis.
It is expected to have negative amendment on the growth data in the UK, since it is also anticipated that the report will point to the possibility of a UK’s economic recession at a great pace, based on the economic present data in the United Kingdom. The inflation is expected to have a negative adjustment; while near future predictions for inflation are shifting between risks of rising and of falling. This is what investors want so they can give the green light to the Central Bank to take a move.
The economic conditions in the United Kingdom are very bad after shrinking in the UK’s gross domestic product during the second quarter by 0.7%, which is worse than what was predicted and worse than its previous quarter contraction of 0.3%. The contraction in the British economy is an inevitable result of the largest cuts in public spending since Second World War. The cuts were approved by the government’s coalition in 2010, aiming at reducing the budget deficit to acceptable levels and in the endeavours to maintain excellent credit rating and reduce the public debt ratio, which reached unacceptable levels.
The United Kingdom fell into a deep recession during the second quarter after a significant drop in exports amid worsening crisis of sovereign debt in the Euro zone, which is Britain’s primary partner; this has paralyzed life not only in Europe but worldwide.
Economic conditions in Britain are very bad due to regression in the performance of the industrial and service sectors during the past few months. Additionally, there is a significant increase in the unemployment rate to levels of 8.2% during the past three months ending in April. Finally, inflation rates have fallen to record levels of 2.4%.
Dear readers, Bank of England’s position, at this moment, is critical, especially after it approved plans during the last month to expand purchase of asset at value of 50 billion pounds. The Central Bank is focused on supporting the growth pace of shrinking economies, especially as expectations for inflation are negative.