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The UK economy is hit with its worst inflation in more than two years. This is not entirely surprising news, as it was only a matter of time until things went from bad to worse. Once again, financial experts and economists got the inflation rate prediction wrong, as they thought things would not evolve so drastically. Unfortunately, the decline of the Pound Sterling is causing to a surge in import costs right now.
UK Economy Gets A Harsh Wake Up Call
Inflation can cripple any economy in the world, and the UK is no exception to this unwritten rule. New statistics show how the economy’s inflation is going up at an accelerated pace, erasing any financial growth of the last 2.5 years. Consumer-price growth has reached its highest level since July of 2014, beating the forecast by economists.
Bank of England Governor Mark Carney warned UK consumers would face more financial headwind in 2017. His words quickly turned into tangible figures, as the Pound Sterling continues to lose value. Since the Brexit, the GBP has suffered from an 18% depreciation. New forecasts will be published next month, which may result in even further losses for the Pound Sterling.
The UK’s inflation is affected by multiple factors. Volatile food and energy prices are one of the culprits, albeit every economy is suffering from this volatility. With costs of imports rising at much as 16.9% between December 2015 and December 2016, it is not hard to see why the inflation rate is accelerating.
These new figures will have a direct impact on the UK interest rates. Unlike what the Federal Reserve projected, there will be hardly any rate hikes in the UK. In fact, it is expected the interest rates will be tightened even further. Right now, the benchmark rate sits at 0.25 percent, which is a record-low. Going below this number will slowly push the UK interest rate into the red.
Stabilizing the situation will be quite a challenge. The United Kingdom heavily depends on their new trading relationship with the European Union moving forward. More information related to this new trading relationship will be unveiled later today. It is still possible the UK will leave the EU’s single market for both goods and services, which could spell further disaster for the UK economy moving forward.
It is unclear if this news will affect Bitcoin adoption in the United Kingdom, though. Inflation directly affects consumer purchasing power, and buying Bitcoin may look less appealing than before. Financial stability will be difficult to come by in the UK moving forward, and Bitcoin adoption may suffer from it.
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