Central banks are facing a mounting headache as stagflation stalks the global economy.
The World Bank said a period of high inflation and tepid growth, reminiscent of the 1970s, is threatening to ‘derail what is now a precarious recovery’ from Covid. And it said it would be ‘hard’ for many countries to avoid recession.
The gloomy warning comes as the European Central Bank prepares to end its massive pandemic-era money-printing programme tomorrow, paving the way for it to hike interest rates.
The World Bank said a period of high inflation and tepid growth, reminiscent of the 1970s, is threatening to ‘derail what is now a precarious recovery’ from Covid
Next week the Bank of England and the US Federal Reserve will also conclude their latest monetary policy meetings – and will be faced with the puzzle of whether they too should lift interest rates even higher to tame inflation or resist as the economy slows.
David Malpass, president of the World Bank, said: ‘The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid.’
The Bank of England has a particularly tough job. Not only is Britain grappling with the energy crisis and effects of the war, but it also has a shortage of workers. This is causing red-hot inflation, squeezing family finances.
Data released yesterday by S&P Global showed the loss of momentum in Britain’s dominant services sector last month – covering everything from shops to banking – was the biggest ever aside from three months during Covid lockdowns.
