Fitch Sees UK Slipping Into Deep Recession On Sharp Rate Hikes
Fitch Ratings said the UK economy is set to enter deep recession as rapid interest rate hikes compound the impact of the energy crisis and the contraction in the eurozone.
Following extreme volatility in UK financial markets and the prospect of sharply higher interest rates, the rating agency downgraded its GDP forecast for next year to -1.0 percent from -0.2 percent projected in September. The economy is expected to recover next year to 1.8 percent.
The policy rate is forecast to rise to 4.25 percent by December 2022 from the current 2.25 percent. By the second quarter of 2023, the interest rate is forecast to advance to 5.00 percent.
Last week, Fitch lowered the sovereign rating outlook on the UK to ‘negative’ from ‘stable’ citing huge tax cuts and higher budget deficits. The credit ratings were affirmed at ‘AA-‘.
The agency observed that the large fiscal stimulus, and the inconsistency between fiscal and monetary policy stance given strong inflationary pressures negatively impacted financial markets’ confidence and the credibility of the policy framework.
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