Bank of England poised for another big interest rate hike
LONDON (AP) — Britain’s central bank raised its key rate another half a percentage point on Thursday, eschewing more aggressive measures to tame inflation that the U.S. Federal Reserve and other banks have taken.
It is the Bank of England’s seventh consecutive decision to raise borrowing costs as rising food and energy prices fuel a cost of living crisis believed to be the worst in a decade. generation. Despite a plummeting currency, a tight labor market and inflation near its highest level in four decades, officials have decided not to act more boldly as sharp increases threaten to tip the economy in the recession.
The bank matched its half-point increase last month – the biggest in 27 years – to take its benchmark rate to the highest level in 14 years at 2.25%. The decision was delayed for a week as the UK mourned Queen Elizabeth II and comes after new Prime Minister Liz Truss’ government announced a cap on spiraling energy bills for households and businesses. businesses.
The energy relief package means consumer prices will peak at 11% in October, lower than expected, the bank’s monetary policy committee said.
“Nevertheless, energy bills will continue to rise and, combined with the indirect effects of rising energy costs, inflation is expected to remain above 10% for the next few months before starting to fall,” the bank said.
The UK’s move comes in a busy week for central bank action, marked by much more aggressive measures to lower consumer prices. The U.S. Federal Reserve raised rates Wednesday by three-quarters of a point for the third straight time and forecast more bigger hikes to come.
Also on Thursday, the Swiss central bank decreed its biggest increase in its key rate.
Soaring inflation worries central banks because it eats away at consumers’ purchasing power. The traditional tool for fighting inflation is to raise interest rates, which reduces demand and therefore prices, making it more expensive to borrow.
Inflation in the UK is 9.9%, close to its highest level since 1982 and five times higher than the Bank of England’s 2% target. The pound sterling is at its weakest level against the dollar in 37 years, contributing to imported inflation.
Since then, the Truss government has unveiled a massive relief package for energy bills that have soared as Russia’s war in Ukraine has helped drive up the price of natural gas needed for heating. Economists say the measures mean inflation will peak at a lower level and then fall faster next year.
The Bank of England has avoided pressure to expand even as other banks around the world take aggressive action against inflation fueled by the global economy’s recovery from the COVID-19 pandemic and then the war in Ukraine.
This month, Sweden’s central bank raised its key rate by one percentage point, while the European Central Bank made its biggest rate hike on record with a three-quarters point hike for all 19 countries. who use the euro.
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