The UK economy is struggling under tight monetary policy, with stagnant GDP growth and high interest rates of 5.25%, which suppress investment and hiring. Businesses, especially SMEs, are facing severe pressures due to high financing costs and lack of credit access. Despite inflation being controlled at 2.0%, the central bank's persistent tight policy risks economic contraction and undermines confidence. Many firms find it difficult to operate under such conditions, as they cannot justify the costs associated with borrowing, resulting in shelved expansion and opportunities lost.
The UK's base rate remains at 5.25%, the highest in 16 years, which translates into suppressed investment, shrinking margins, postponed hiring, and shelved expansion plans.
When rates are held artificially high in the face of falling inflation and crumbling demand, businesses are starved of the oxygen they need to survive.
The persistence of tight policy in the face of falling inflation signals a lack of responsiveness and risks tipping a fragile economy into contraction.
Inflation is back under control at 2.0% in May, yet rates remain anchored at levels designed for a completely different environment.
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