UK’s economic future “very uncertain” says Bank of England

The Bank of England says the UK economy has worsened

In the latest Financial Stability Report, the Bank of England warns the economic outlook for the UK economy has “deteriorated materially.”

The worsening economy is largely due to inflationary pressure caused in part by “Russia’s illegal invasion of Ukraine.”

In recent months, the global market has been volatile and at this point, UK banks will need to reserve money in a rainy day fund to absorb changes in the economy.

The Bank of England has ordered UK banks to put aside 2% of their capital — roughly £22 billion — for this reason.

The quarterly report added:

“Prices of essential goods such as food and energy have risen sharply in the UK and globally, and the outlook for growth has worsened. This is largely a result of Russia’s illegal invasion of Ukraine.

Like other central banks around the world, we have increased interest rates to help slow down price increases. Markets have been volatile and financing conditions have tightened.

These higher prices, weaker growth and tighter financing conditions will make it harder for households and businesses to repay or refinance debt. Given this, we expect households and businesses to become more stretched over coming months. They will also be more vulnerable to further shocks.”

UK living standards are expected to be impacted by the rising cost of living, while unemployment rates are expected to rise. Despite this, the report says most of UK households and businesses have low debt levels and will likely be in a similar situation even at the end of this year.

The central bank also suggested that this economic uncertainty raised concerns for the world’s financial market. While, the International Monetary Fund (IMF) and Organisation for Economic Co-operation and Development (OECD) has said the UK is more vulnerable to a recession than other countries in the West.