![]() The difficult economic conditions in the UK are not expected to improve any time soon. On November 1 it was US$1.145, but by November 3 it had weakened to US$1.118, and while the pound strengthens and weakens over time like any currency, it is generally considered a much weaker currency now than it once was. Again, you would have expected this to strengthen the pound, but this did not happen against the US dollar, again because of its relative strength. On November 1, the day before the rate rise took effect, the euro was worth US$0.987 but by November 3, it had weakened to US$0.975.But this was more to do with the US dollar strengthening over the same period.Ī similar picture is emerging in the UK as the Bank of England also raised interest rates on November 2 by 0.75 of a percentage point to 3%. With interest rate rises you would expect a currency to strengthen, but this did not happen across the board to the euro on the back of the latest ECB rate rise, in fact it weakened against the US dollar. Add to this higher mortgage and other borrowing costs coming so soon after both individuals and companies work to recover ground lost during the pandemic, mean there is unlikely to be good news for economic recovery in the short term. ![]() Higher interest rates tend to be good news for currency strength, yet the myriad factors affecting the current global economic climate mean the traditional link between interest rate rises and currency strength may not always play out as expected. ![]() Rates are likely to rise further, said Ms Lagarde, but how far and how fast “will be determined by the inflation outlook”. She added: “Additionally, although recent data on GDP growth have surprised on the upside, the risk of recession has increased.” Our assessment is that risks to financial stability have increased, while a technical recession in the euro area has become more likely.”Ĭhristine Lagarde, president of the ECB, went further, saying that Europe is not only “facing a sequence of ill-fated events – the pandemic, the energy crisis, Russia’s unjustifiable invasion of Ukraine and high inflation – but that as a result, the environment around us is also changing”. Luis de Guindos, Vice-President of the ECB, said: “People and firms are already feeling the impact of rising inflation and the slowdown in economic activity. It hit 10.6% in October, moving further away from the ECB’s target of 2%, partly due to rising energy prices which have been pushed higher by the war in Ukraine. There are limited ways in which the central banks can bring inflation under control, so they have little room to manoeuvre, and raising interest rates is typically the answer.Įurope For example, the European Central Bank raised interest rates at its fastest rate yet – by 2 percentage points in its last three policy meetings– as it struggles to rein in inflation in the Eurozone. You could call it a perfect economic storm. The central banks do not have an easy choice, as both raising rates and price inflation mean disposable income is reduced which impacts the speed of economic recovery. How long and how deep the recession is for each country depends on a variety factors and rising interest rates could leave companies and individuals with high mortgages or other debt facing bigger repayment costs, meaning less available cash to spend which would boost the economy. ![]() A global recession also looms large for many countries before the end of the year and is expected for some to stretch well into 2023 or even 2024. ![]() Recession fears are currently plaguing global economies, and with inflation rising to levels not seen since the early 1980s in many cases, most central banks are raising interest rates in a bid to get consumer prices back under control.Ĭentral banks around the world have raised interest rates in the last few months as inflation reaches levels not seen in nearly 40 years. December 7 – Canada – Bank of Canada interest rate decisionĭecember 13 and 14 – US Federal Reserve and the US CPI meetingĭecember 13 – UK – Financial Stability Reportĭecember 15 – UK Monetary Policy Committee meeting ![]()
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