The UN has called on central banks not to increase interest rates and depart from the monetary policy being pursued by a large number of western regulators, including the Bank of England.

A recession worse than that experienced after the global financial crisis could result from monetary regulators tightening policy and hiking interest rates, the United Nations Conference on Trade and Development (UNCTAD) has warned.

The Trade and Development Report 2022, published by UNCTAD on Monday, expressed "worries that an unduly rapid tightening of monetary policy in advanced economies in combination with inadequate multilateral support could turn a slowdown in to recession".

That would trigger "vicious economic circles in the developing world with the damage more lasting than after the global financial crisis or Covid shock", the body said.

The actions of the American central bank, the Federal Reserve, known as the Fed, were specifically addressed by the report for hurting growth: "This year's interest rate hikes in the United States are set to cut an estimated $360 billion of future income for developing countries (excluding China) and signal even more trouble ahead".

Instead of increasing interest rates to fight inflation, policy makers should put in place price caps funded by one-off taxes on unusually large profits being made by energy companies, lead author Richard Kozul-Wright told the Wall Street Journal.

Late last month the Fed, similar to the Bank of England, said it was committed to reducing inflation to 2% by increasing interest rates to 4.4% by the end of 2022 and 4.6% in 2023. Higher interest rates mean paying back debts such as mortgages and credit card repayments becomes more expensive.

The Bank of England also raised interest rates in the UK to 2.25%, the highest level since 2008. It's expected this rate will rise to 6% even higher than has been announced.

Overall the world economy is expected to grow 2.5% this year according to the UNCTAD report, down more than 1% from the growth projected in the same report for 2021. This is only to get worse, it said, as growth is expected to decelerate again next year to 2.2%, leaving real gross domestic product (GDP) - a measure of the market value of goods and services produced - below its pre-Covid trend by the end of 2023.

The economy of the UK was "grew rapidly" in 2021 by 7.4%, the report said. But this still did not compensate for the contraction of 9.3% due to Covid-19. The growth momentum continued into the first quarter of this year but "a series of headwinds, some resulting from Brexit and others from international conditions, are impacting the outlook".

"External adversities stemming from sluggish global demand, exchange rate instability and yet unresolved Brexit
shortcomings are contributing to current account challenges."

This, combined with the cost of living crisis which has weakened consumer demand, will result in the economy contracting 0.9% next year, the UNCTAD said.