Four-way rate split looms at Bank of England as strikes stoke slowdown

Paul Dales, chief UK economist at Capital Economics, said the industrial action would have a direct impact on sectors which generate 18% of UK GDP.

However, only around 3% of the economy’s output is at risk from the strikes and the overall impact on GDP is expected to be “quite small”, between 0 and 0.5%.

“Any impact on GDP is not helpful when the economy is probably already in recessionsaid Mr. Dales.

“Strikes can contribute to stronger wage growth than otherwise, which may mean inflation is higher than otherwise and interest rates need to be higher than otherwise for longer.”

The hospitality and travel industries are expected to be hardest hit by growing industrial action that will further dampen economic activity. The Center for Economics and Business Research (CEBR) estimates the railway strikes will lead to an almost £500m drop in GDP by the end of January.

Doug McWilliams, Founder of CEBR, said: “Railway strikes impact GDP in a range of areas, including where it bites the most is hospitality.”

Mr Dales added that, while the strikes “are minimal compared to the 1970s and early 1980s”, they are becoming widespread and having a ripple effect on economic activity elsewhere.

The recession and the cost-of-living crisis cast doubt on the Bank’s ability to push rates much further.

However, a tight labor market is fueling wage growth and threatening to lead to stubbornly high inflation.

Hopefully Wednesday’s inflation data will suggest that price growth has now peaked and is starting to slow.

Economists expect the inflation rate to drop from a 41-year high of 11.1% to 10.9% in new November figures released on Wednesday.

A 0.5 percentage point increase in interest rates would take the Bank of England rate to 3.5%.

MPC member Silvana Tenreyro is seen as likely to push for a pause in rate hikes, while Swati Dhingra is expected to vote for a smaller 0.25 percentage point increase in the bank rate. On the hawkish side of the MPC, Sir Dave Ramsden, Catherine Mann or Jonathan Haskel could support more aggressive action against inflation by voting for a further 0.75 percentage point increase.

A slew of central banks are expected to slow the pace of their rate hikes this week after signs that inflation has peaked. Rate setters at the Federal Reserve and European Central Bank are also expected to vote for a slower rise in borrowing costs at their respective meetings this week.

Hopes that price rises might finally be brought under control led worries to shift to the impending economic downturn.

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