Bank of England: Rising Inflation Can Ignite a Global Sell-off That Would Harm the UK

The Bank of England has warned that rising inflation might spark a sell-off in global financial markets, harming the UK economy.

  • Bank of England (Reuters)
    The Bank of England (Reuters)

The Bank of England Street announced inflationary tensions are on the rise as the speed of economic recovery from the pandemic slows down, according to a report by The Guardian.

The Bank’s financial policy committee added in its regular financial health check that risky asset prices in several markets had grown to historically high levels. It continues that the whole situation could be primed for an acute fall amid speedy growth in inflation. 

The FPC said: “Asset valuations could correct sharply if, for example, market participants re-evaluate the prospects for growth, inflation or interest rates.” 

The UK is facing the fastest growth of business costs since at least the 1990s, this is mainly caused by Brexit and COVID-19. Households are suffering from additional pressure due to soaring gas prices.

Inflation is expected to reach 4%

Until at least the summer of 2022, the bank expects the inflation rate to remain high before gradually falling from near 4% to almost 2%.

As the world economy emerges from lockdown, global financial markets have been rocked in recent months, raising the possibility that major central banks would be compelled to remove pandemic support measures before the economic recovery from the coronavirus is complete.

Concerns have also been expressed about excessive levels of corporate debt in the report, particularly about Chinese Evergrande, where the report claims that the inability to keep up with loan payments will send sent shockwaves across global markets. However, the bank claims the UK showed its resilience to such shocks. 

US economy fails to create jobs

US numbers released on Friday revealed the world's largest economy added only 194,000 jobs in September, significantly fewer than projected, indicating concern about weakening global economic growth despite rising pricing pressures.