The Bank of England warned on Tuesday that the economic outlook for the United Kingdom and the world at large has "deteriorated materially," with a sharp rise in inflation, falling real incomes and profit margins of some businesses, and tightening global financial conditions. "Market interest rates and corporate bond spreads have risen sharply, reflecting expectations of further policy tightening in response to renewed risks of more persistent elevated inflation and increasing credit risk," the bank stated.
The BoE pointed to a number of downside risks to financial stability, including the developments in the Ukraine war, and further uncertainties concerning China's property sector and potential new COVID-19 restrictions. It put emphasis on inflation, noting that stronger or more persistent inflationary pressures could lead to "weaker economic growth globally, a further sharp tightening in global financial conditions, and the potential for further volatility and stress in financial markets. 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."
