Publicly, BoE officials see that the UK is already in recession. Officials at the European Central Bank assume that the eurozone has entered recession this quarter. The economies of both the UK and the Eurozone have been hit by rising energy costs as a result of Russia’s invasion of Ukraine.
The United States is less exposed to the repercussions of the war, but it still faces the risk of deflation, with high inflation and interest rates affecting the economy. Although Powell shied away from saying a recession was imminent, two of his colleagues indicated in forecasts released last week that GDP would contract in 2023.
While the three central banks are preparing to continue raising interest rates in 2023, it is unlikely that interest rate increases will remain the same as last week’s increase.
Powell kept the door open for the Fed to once again raise interest rates by a quarter point in February 2023, while Lagarde told the markets that she underestimated the ECB’s resolve.
Lagarde has flagged the possibility of a half-point rate hike twice, and has also announced plans to start reducing stocks of about 5 trillion euros ($5.3 trillion) of bonds.
Bank of England and raise interest
Meanwhile, BoE rate cuts are coming into focus. Although the majority voted during the past week to raise interest rates by half a point to 3.5%, but two officials opposed the rate hike, and indicated that monetary policy should be eased soon.