(Reuters) – Britain’s chances of sliding into recession in the next year or two have increased as inflation rises due to the country’s vulnerability to external shocks, economists said on Friday, a day after the Bank of England raised borrowing costs.
The Bank of England raised its benchmark interest rate to 1.25% on Thursday – the highest level since January 2009. Although its move was more gradual than other central banks, the central bank said it was ready to act. “Strongly” if necessary to counter inflation risks.
“If (the Federal Reserve) causes a sharp slowdown in growth or a recession, it will extend to the UK and, along with tightening domestic financial conditions, is likely to trigger a UK recession,” the BOJ said.
On Thursday, the Fed adopted its largest rate hike since 1994 and signaled a slowing economy.
GBM added: “…Given the nature of the British economy, we see extreme vulnerability to external shocks in the short term and see an increased chance of a recession in the next year or two.”
(Reporting by Siddharth S and Pushkala Aribyaka in Bengaluru)
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