### Summary
The UK government still holds a near 40% stake in NatWest bank, 15 years after the financial crisis, and this has prevented the bank from operating as a fully independent business. The UK economy has not seen the same level of recovery as the US since the crisis, and political hesitancy to sell the stake has hindered progress.
### Facts
- The UK government's stake in NatWest allows them to intervene in the bank's affairs, as seen with the recent sacking of the chief executive, Dame Alison Rose.
- Unlike the US, which has fully disposed of its bank holdings and experienced strong economic growth, the UK remains burdened by the legacy of the financial crisis.
- Progress has been made in selling down the NatWest stake, but concerns about selling at a loss have slowed the process.
- Private capital still sees the bank as dependent on the government and not a true independent business.
- The UK economy has been propped up by low interest rates, but this has led to mountainous debt, inflation, and a potential election defeat for the government.
- The UK economy is stagnant, with little real income and productivity growth.
- The government and Bank of England's focus on getting inflation back to target may induce a recession.
- The rapid rise in interest rates following a prolonged period of near-zero rates could be particularly damaging to the UK economy, which is unprepared for expensive money.
- Wage growth and inflation targets are incompatible, indicating the need for a reckoning.
- The UK's productivity problem lies in the oversized service sector, a growing public sector, and the lack of recession-induced restructuring.
- Many small and medium-sized companies have struggled to stay afloat, with the zero interest rate environment being their only support.
- Overall productivity will not increase until underperforming businesses are removed, which typically requires a recession.
UK factory output has fallen sharply to its lowest level in nearly three years, indicating that Bank of England interest rate increases are slowing the economy, according to the latest manufacturing snapshot from the CBI.
The Bank of England is predicted to make only one more increase to Bank Rate, taking it to 5.50% in September, despite other major central banks halting rate hikes, as the BoE struggles to control inflation.
The Bank of England may have to increase interest rates if the US Federal Reserve decides to raise rates to cut inflation, in order to prevent the pound from weakening and inflation from rising further.
China's "shadow banking" sector is facing a crisis as the government struggles to maintain economic growth, with concerns about the solvency of trust companies like Zhongrong International Trust Co.; however, a new analysis suggests that the government's ability to use fiscal stimulus may be more limited than many believe.
British factories in August experienced their weakest month since the start of the COVID-19 crisis due to shrinking orders caused by rising interest rates, according to a survey, resulting in a decline in purchasing activity, inventory holdings, and staffing levels. However, the slowdown in domestic and export demand has alleviated inflation pressures, potentially leading to a decrease in goods price inflation. With the economy showing signs of a slowdown, the Bank of England is expected to raise rates for the 15th consecutive time, despite concerns that it may lead to a recession.
Surging interest rates in the UK have led to a slump in factory output, the biggest annual drop in house prices since the global financial crisis, and signals of distress in different sectors of the economy, posing a dilemma for the Bank of England as it decides whether to raise interest rates further.
China's shadow banking industry, which includes lightly regulated trust firms, is facing financial distress due to the country's economic woes, raising concerns of a potential larger financial crisis that could spread globally. The fall of these trusts could have a domino effect and impact Western organizations that have loaned to shadow banks, affecting the broader economy and stock market. There may be a call for regulatory measures to rein in the unruly shadow banking sector.
The US banking industry faces significant downside risks from inflation and high interest rates, which could weaken profitability and credit quality, according to FDIC Chair Martin Gruenberg.
Inflation in Britain slowed for a third consecutive month in August, defying expectations of a rise due to higher fuel prices, with consumer prices rising 6.7 percent compared to the previous year, driven by slower increases in food prices and a decline in hotel room costs. Core inflation also fell more than anticipated, indicating a potential easing of inflationary pressures, though price growth remains uncomfortably high. The Bank of England is set to announce its decision on interest rates, with growing speculation that rates may be held steady due to signs of slowing inflation and a weak economy.
The prospect of the Bank of England pausing its interest rate hikes increased as the UK's high inflation rate unexpectedly slowed to an 18-month low, causing the pound to fall and investors to see a nearly 50-50 chance of rates staying on hold at the BoE's September meeting.
The Bank of England has decided to halt interest rate rises due to unexpected inflation slowdown, while housing markets in major global economies, including the US, Germany, and the UK, are showing signs of slowing down. Additionally, there have been developments in various countries' economic outlooks and key interest rates.
Higher interest rates pose a greater risk to younger workers and those with lower incomes, potentially exacerbating inequality and impacting the economy, according to a member of the Bank of England's Monetary Policy Committee. Dr. Swati Dhingra has expressed concerns about the household and business impacts of interest rate hikes, warning that the economy's slow growth and the potential for recession may lead to difficult times ahead.
The UK economy's marginal growth in August has led to expectations that interest rates will remain unchanged next month, with analysts describing the figures as lacklustre and warning of the negative impact of higher borrowing costs and the higher cost of living on consumers and businesses. The economy is currently not in recession but concerns over weak growth persist, making it a key issue in the upcoming election.
Despite high interest rates and sluggish GDP growth, analysts predict that the UK will avoid a recession due to a likely end to rate increases, falling inflation, and a return to real pay growth.
