Europe

‘Economic uncertainty’ as BoE places question mark over inflation rise

Pound: John Redwood discusses role of Bank of England

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“Economic uncertainty” is hitting UK businesses hard, resulting in lower performance and, subsequently, decreasing turnovers, according to new data. Thirty-five percent of the companies approached by the Office for National Statistics (ONS) said this was having an impact on their trading levels.

The information was compiled earlier this month, at which time just over one in five (21 percent) of trading businesses said they expected their turnover to decrease in November.

This figure could well be higher now, given the apparent increasing instability of Liz Truss’s administration.

Revolut debit card transaction data showed decreasing spending in the week to October 16 in the retail, food and drink, pub, restaurant and fast food industries.

Just under half of businesses also reported an increase in prices of goods bought in September 2022, as well as that of energy.

At the same time, a net 12 percent of businesses reported their turnover had decreased, meaning many suffered a double hit to profits.

Perhaps most worryingly, at the beginning of this month 41 percent of trading businesses said they had either no cash reserves (13 percent) or just enough to last three months or less (28 percent).

These figures came as the Bank of England (BoE) raised a question mark over the extent of further interest rate rises.

Deputy Governor for Monetary Policy Ben Broadbent today said it remained to be seen whether rates rise as sharply as the market has been expecting.

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This led to investors further reigning in their bets of a full percentage-point interest rate increase next month, according to Reuters.

Index swaps put a 15 percent chance on a 100 basis-point increase on November 3, down from 25 percent before Mr Broadbent’s comments.

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He told an audience at Imperial College the bank “is likely to respond relatively promptly to news about fiscal policy”.

While ONS figures suggest businesses view economic uncertainty as having the biggest impact on their turnover, 29 percent also cited cost of materials, 17 percent cost of labour and 16 percent other financial costs.

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