Liz Truss and Kwasi Kwarteng under pressure to grow economy with mini Budget after recession forecast

Liz Truss and Kwasi Kwarteng are under pressure to keep the economy from sliding into recession after the Bank of England forecast a contraction in GDP and hiked interest rates.

The chancellor is due to deliver his financial statement in parliament on Friday, a package of tax cuts and regulatory reforms that he argues will boost the economy’s growth.

The Bank of England said Thursday the UK is likely already in a technical recession, with two consecutive quarters of negative growth.

Nevertheless, the bank announced that it would raise interest rates by half a percentage point to 2.25 percent – the highest level in almost 14 years.

The rate hike widely expected to be repeated in November means mortgage borrowers will have to pay hundreds more every month. The Bank of England is trying to lower inflation by dampening economic growth, even as the Prime Minister and Chancellor pledge to make growth their top priority. Economists predict that interest rates could reach 5 percent, which would make mortgages and all other forms of credit significantly more expensive.

UK GDP is expected to decline 0.1 percent in the current quarter, partly due to the extra bank holiday for the Queen’s state funeral, according to the bank, after contracting 0.1 percent in the second quarter. She blamed “pressures on real disposable incomes” for the general decline in economic activity.

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A weaker economy is likely to put further pressure on public finances, even as the Treasury increases borrowing to pay for energy bill support and tax cuts. But sources close to Mr Kwarteng said the prospect of a recession had redoubled his determination to spur growth in the months and years ahead.

David Bharier of the British Chambers of Commerce warned that the two main drivers of economic policy, the government and the bank, are now at odds. He said: “The Chancellor’s financial statement on Friday is now a critical moment. It has the unenviable task of supporting the economy while avoiding additional inflationary stimulus. The bank, which wants to dampen consumer demand, and the government, which wants to boost growth, could now be moving in opposite directions.”

One of Ms Truss’ closest economic allies warned the Bank of England not to “overdo” interest rate hikes as it could slow the economy. Sir John Redwood, who has become an influential backbencher figure in the new government, said the government was right to “offset” the impact of high energy prices and urged the bank to join efforts to predict a wider slowdown avoid.

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“We are at the point today where the government and the Bank of England have to decide whether they can avoid a deep recession as a way of correcting inflation, which I think is possible,” he said I before the rate hike.

“I think the Bank of England shouldn’t overdo the tightening from here. I think they made a very big tightening that they had to do. But they should understand that these things take time to have consequences.

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“And we haven’t really started to see the impact that this is likely to have on the housing market, but we do know that mortgage rates are going up a lot and that’s also going to have an impact on demand for houses, thereby affecting people’s disposable income.” being squeezed quite a bit with mortgages.”

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The Treasury and No 10 have refused to publicly criticize the bank for pursuing policies opposed to the government, which is keen to boost growth and avoid the prospect of a prolonged recession.

A No10 spokesman said: “Britain is not alone in facing slow growth as Putin’s illegal invasion of Ukraine and arming of energy pose a global challenge to economies around the world. It is not uncommon for forecasts to fluctuate and change as further interventions are made. And that’s why we support households and businesses with high energy bills.”

Opposition politicians accused the government of causing a recession by refusing to act earlier to reassure people about their rising energy bills. Shadow Chancellor Rachel Reeves said: “The Truss rate hike shows how this Tory government has lost control of the economy.” Sir Ed Davey, the leader of the Liberal Democrats, added: “The blame for this recession clearly lies with Conservative MPs who hesitated for months and failed the British people.”

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