Global economic outlook deteriorates materially, warns Bank of England Featured

The Bank of England on Tuesday said the economic outlook for the UK and the world has deteriorated significantly as war-driven hikes in energy and other commodity prices have exacerbated inflationary pressures arising from the pandemic.

The bank warned that there are a number of downside risks that could affect the country's financial stability.

"Developments related to the Russian invasion of Ukraine are a key factor that will affect both the global and UK outlooks, particularly if energy and food prices rise further," it said.

The bank also said that more persistent inflationary pressures might lead to a further sharp tightening in global financial conditions.

"Tighter conditions would increase the pressures already facing households and businesses and the serviceability of public sector debt in some countries, including in the euro area," it underlined.

It also said that tighter financial conditions and reduced real incomes will weigh on debt affordability for households, increasing the risks from global debt vulnerabilities.

The bank also warned about risks emerging from China, hinting at the re-emergence of vulnerabilities in the property sector and the risks related to China's zero COVID-19 policies.

"These pose risks to UK financial stability through economic and financial spillovers," it said.

Meanwhile, stress tests for 2022, in which the possibility of a “deep recession” will be evaluated, will begin in September, and the results will be announced by mid-2023.

The annual inflation rate in the UK rose to 9.1% in May of 2021 from 9% in the previous month, the highest since 1982./aa