The world’s most powerful banks are losing faith in the macroeconomic judgment of the Bank of England. A disturbing number think the Monetary Policy Committee has misread global events and is tightening too hard, risking a deep and protracted downturn.
Citigroup expects something akin to an economic depression unless there is a change of policy. It forecasts zero growth this year, a contraction of 0.2pc in 2025, and barely any recovery in 2026. This follows a 0.7 fall in GDP per capita in 2023, and earlier falls in 2022. “We think the UK is still on course for a hard economic landing,” it said.
Taken together, and stretched over so many years, this is worse than any chapter seen since the Industrial Revolution, including the austerity episodes after the Napoleonic Wars and the First World War, or the Gold Standard crisis from 1929-1931. If allowed to happen, it constitutes an historic failure of British economic policy and statecraft.
Citigroup more or less accused the Bank of refusing to admit that its models are flawed, and that it will therefore delay before having to carry out another screaming U-turn. “A pivot towards easing now will require the MPC to conclude that previous judgments surrounding UK inflation dynamics were erroneous,” it said.
Sven Jari Stehn at Goldman Sachs thinks that “underlying inflation” is much weaker than the Bank of England supposes, predicting that headline inflation will drop to 1.7pc in the spring and then stay low, ending the year at 1.6pc and remaining below target deep into 2025.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
