London: The British economy experienced a welcomed abatement in inflation during 2023, yet it remains precariously poised to conclude the year with a recession, grappling with intensified pressure from a relentless onslaught of interest rate hikes. Experts caution that the economic landscape is on a "knife edge," setting the stage for a challenging entry into 2024.
In 2023, inflation emerged as a critical battleground for both the Bank of England and Prime Minister Rishi Sunak, as surging prices posed a substantial threat, triggering industrial action reminiscent of the scale witnessed in the 1970s. In January, Sunak underscored the importance of curbing inflation, making it one of his five key pledges to halve it by year-end.
Confronted with the seemingly formidable task of restoring inflation to its 2% target, the Bank embarked on an unwavering campaign of interest rate increases, propelling borrowing costs to levels unseen in over 15 years. Homeowners bore the brunt of this strategy, enduring 14 consecutive rate hikes that culminated in a peak of 5.25% in August. The Bank, however, hit the pause button as inflation retreated.
Beginning the year at 10.1% in January, inflation experienced a sharp decline, reaching 4.6% by October, allowing Sunak to declare an early victory in achieving his inflation reduction goal. November witnessed a further decrease, with inflation dropping to 3.9% as fuel prices fell, and the pace of food cost increases slowed.
Despite this positive trajectory, Bank governor Andrew Bailey tempered the government's optimism by cautioning that the battle against inflation was far from over. There is still a considerable distance to cover before returning to the 2% target. Notably, the substantial pullback in inflation was not solely attributed to policy actions but was also significantly influenced by this year's lower energy price cap, contrasting with the £2,500 ($3,180) limit set a year ago.__DPA
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