Bank of England hikes rates by half point to 4% amid inflation fight
Global News
The International Monetary Fund this week said that the U.K. was on track to be the only major economy to shrink this year, even as the outlook for the rest of the world improves.
The Bank of England raised interest rates by half a percentage point Thursday as it sought to tame double-digit inflation that is fueling a cost-of-living crisis, public-sector strikes and fears of recession.
The bank’s monetary policy committee voted 7-2 to push its key rate to four per cent, approving the 10th consecutive rate increase since a post-pandemic surge in the world economy and Russia’s war in Ukraine drove inflation to 40-year highs.
Economists suggest this may be the last big rate increase for Britain’s central bank as inflation begins to slow.
“The extent to which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far,” the bank said in a statement. “There are considerable uncertainties around the outlook.”
The U.S. Federal Reserve has already started tapering its response, boosting its key rate by just a quarter-point Wednesday. The European Central Bank, meanwhile, is expected to go big again, with economists forecasting a half-point increase Thursday.
Optimism grew that rate increases may begin to tail off after U.K. inflation eased for a second straight month to 10.5 per cent in December, down from a peak of 11.1 per cent in October. That’s still far higher than in the U.S. and the 20-country eurozone, where inflation slowed to 6.5 per cent in December and 8.5 per cent in January, respectively.
With the cost of food and services rising and wage increases outstripping forecasts, the bank sent the message that it is serious about fighting inflation even as energy prices fall and concerns about sluggish economic growth take center stage.
“Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom,” the bank said. “Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand.”