UK recession may already be over, states Bank of England chairman

February 26, 2024

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UK recession may already be over, states Bank of England chairman

Based on the statements from the Bank of England's governor, Andrew Bailey, it appears that there are indications suggesting that the UK recession may already be ending.

With new signs of an upturn in the economy. Bailey highlighted that by historical standards, this recession is notably weak.

Official figures from the Office for National Statistics (ONS) showed that the UK economy contracted by 0.3% between October and December of the previous year, following a previous contraction between July and September, indicating a recession as defined by two successive quarters of economic decline.

However, despite these indicators of potential economic recovery, the Bank of England signalled that it is not considering an immediate interest rate cut. Instead, it is waiting for further evidence, particularly in areas such as wage growth and job vacancies, to confirm whether inflation has decisively turned.

Bailey also mentioned the possibility of inflation being influenced by changes in energy prices, with expectations of a decrease in the price cap on UK electricity and gas bills from April. 

While this might temporarily bring overall inflation down to the Bank of England's 2% target, Bailey cautioned that inflation could rise again over the year.

Overall, while there are optimistic signs of an economic upturn and the recession potentially coming to an end, the Bank of England is adopting a cautious approach, awaiting more evidence before making significant policy decisions.

Israel's economy shrinks more than expected due to ongoing Gaza conflict

Official data reveals a significant contraction in Israel's economy following the conflict in Gaza, surpassing earlier expectations. 

Gross Domestic Product (GDP), a crucial indicator of economic well-being, plummeted by 19% annually in the fourth quarter of 2023, marking a 5% decline from October to December alone. The Central Bureau of Statistics attributed this decline directly to the outbreak of conflict on October 7.

Analysts expressed surprise at the severity of the economic downturn, as forecasts had anticipated a milder annualised decline of 10.5%. The Central Bureau of Statistics outlined how the war severely impacted various economic sectors, leading to reduced spending, travel, and investment at the year's end. 

Private spending saw a staggering 26.3% decrease, while exports and investment in fixed assets, particularly in residential buildings, experienced notable declines of 18.3% and 67.8%, respectively. 

The construction industry suffered from labour shortages due to military mobilisation and a decrease in Palestinian workers. Conversely, government spending surged by 88.1%, primarily attributed to war-related expenses and compensation for affected businesses and households.

Despite the sharp GDP contraction in the final quarter, Israel's economy managed to grow by 2% for the entire year. However, prior to the October 7 attacks, it had been projected to expand by 3.5%. 

Furthermore, the conflict's repercussions extended beyond Israel, affecting regional trade dynamics. Houthi rebels, supported by Iran, targeted cargo ships traversing the Red Sea en route to the Suez Canal, disrupting global trade routes. 

Egyptian President Abdel Fattah al-Sisi disclosed that these attacks had slashed Suez Canal revenue by an estimated 40% to 50% for the year. The Red Sea, a vital artery for maritime trade, typically handles nearly 15% of global seaborne commerce.

Africa’s largest economy is battling a currency crisis and soaring inflation

Nigeria finds itself entrenched in one of its most severe economic crises in recent memory, with annual inflation nearing 30% and its currency experiencing a rapid decline, sparking widespread outrage and protests nationwide.

On Monday, the Nigerian naira hit a historic low against the U.S. dollar on both the official and parallel foreign exchange markets, plummeting to nearly 1,600 against the greenback on the official market, a stark drop from around 900 at the beginning of the year.

In response to the escalating crisis, President Bola Tinubu announced plans on Tuesday for the federal government to mobilise at least $10 billion to bolster foreign exchange liquidity and stabilise the naira, as reported by numerous local media outlets.

Since assuming office in May 2023 amidst a struggling economy, President Tinubu has pledged a series of reforms aimed at restoring stability. However, the unified approach to Nigeria's exchange rates, along with the adoption of market-driven mechanisms to determine the exchange rate, has led to a significant depreciation of the currency. Additionally, adjustments in how the currency's closing rate is calculated by the market regulator have further contributed to de facto devaluation.

Years of stringent foreign exchange controls have exacerbated pent-up demand for U.S. dollars, coinciding with declines in overseas investment and crude oil exports, key pillars of Nigeria's economy. Despite being Africa's largest economy with a population exceeding 210 million, Nigeria heavily relies on imports to sustain its rapidly growing population.

Meanwhile, inflation continues its upward trajectory, with the headline consumer price index soaring to 29.9% year-on-year in January, marking its highest level since 1996. The surge is primarily fueled by a persistent increase in food prices, which spiked by 35.4% last month compared to the previous year.

The escalating cost of living and economic challenges have triggered protests nationwide over the weekend. The sharp depreciation of the currency compounds the adverse effects of government reforms, such as the removal of gas subsidies, resulting in a threefold increase in gas prices.

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