The Bank of England continued its recent trend of raising interest rates by a quarter point on Thursday, but has indicated that a significant rate hike could occur due to growing concerns about sustained inflation. increase.
Recently, central banks around the world have opted for a significant increase in interest rates in order to send a firm message of lowering inflation. This is at a level not seen in decades in some countries.
When the Bank of England raised the benchmark rate to 1.25%, the highest since 2009, the price was raised as companies responded to rising costs by raising their prices and workers demanded higher wages. It highlighted signs that the rise is deeply ingrained in the economy. The bank, which is currently raising rates five times in a row, said it would “act strongly” against inflationary pressures as needed.
Inflation rose to 9% in April, the highest in 40 years and is expected to exceed 11% in October, compared to previous forecasts that household electricity and gas bills are expected to rise again. The bank said Thursday that it was also expensive. This is the highest rate since the early 1980s, more than five times the bank’s 2% inflation target.
Three members of the bank’s nine interest rate setting committee voted in half, hoping the bank would take stronger action this week. However, a majority voted a quarter point amid concerns over a weakening of Britain’s economic outlook.
Hugh Gimber, a strategist at JP Morgan Asset Management in London, said officials “added text to the statement talking about their determination,” but halved “they are serious about tackling inflation.” It would have been a much clearer indication of being in London. ” Banks needed to show that they wanted to re-fix inflation expectations at a lower level by “not just talking, but actually taking a walk.”
Other central banks are taking a more aggressive approach. On Wednesday, the Federal Reserve raised interest rates by three-quarters. This is the largest rise since 1994. Swiss National Bank It surprised the market by halving interest rates.
Last week, the European Central Bank said it could raise interest rates by a quarter point in July for the first time in more than a decade and double the scale of interest rate hikes at its September meeting.
In the UK, policy makers are also fighting economies at risk of recession.Data showed its economic growth this week Contracted for 2 consecutive months in April.. Banks are currently forecasting the economy to shrink 0.3% in the second quarter rather than growing slightly. The pressure on household income due to rising prices is putting pressure on consumer confidence, and companies are worried that spending will be exhausted. UK average wagesAfter adjusting for inflation, it has decreased the most in more than 10 years.
Central bank governor Andrew Bailey previously said his colleagues are on a “narrow road” trying to combat inflation without cooling the economy too much. This was especially difficult as much of the inflation was essentially imported into the country through globally traded commodities involved in rising energy prices and disruptions in the international supply chain.
It was a problem for many countries as a supply bottleneck after the pandemic blockade clashed with the trade turmoil caused by the war in Ukraine. Since Russia’s invasion of Ukraine, oil and gas prices have risen, and prices of essentials such as fertilizers and wheat have pushed up global food prices. This was inflation where banks could do almost nothing.
But on Thursday, the focus shifted to concerns about inflation occurring in the country. For example, consumer service inflation, which is influenced by domestic costs, not international commodity prices. “Not all excess inflation is due to global events,” the bank said.
Inflationary pressure also stems from the country’s tight labor market. With a record number of jobs, companies competing for staff are increasing wages and bonuses, while increasing prices as their costs increase. Core inflation, which removes volatile energy and food prices, is expected to rise from about 6% in April to 7% in September.
As a result, policymakers did not rule out a significant increase in future interest rates in the change in tone since the Bank of England meeting in May. According to the minutes of the banking meeting, the Commission “pays special attention to signs of more sustained inflationary pressure and acts vigorously as needed.”
