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Thursday, February 2, 2023

UK central bank raises interest rates by 0.5%


Status: 08/04/2022 2:19 p.m.

The Bank of England raises interest rates by half a percentage point to 1.75% to rein in high inflation. This is the biggest increase in central bank interest rates in 27 years.

The British central bank raised its key rate significantly by half a percentage point to 1.75%. Since the Bank of England (BoE) gained independence in 1997, interest rates have not risen as much. The monetary policy committee voted in favor of the rate hike by a clear majority of eight to one. The pound weakened after the interest rate decision. The British currency fell to a daily low.

In Britain, the central bank has long been under pressure to rein in runaway inflation. The inflation rate recently reached 9.4%, the highest value in 40 years. The target is 2% inflation.

Inflation expected at 13%

The markets were expecting a significant rise. Monetary watchdogs in London had been raising interest rates gradually since December 2021, but only in small increments. “It may seem surprising from the perspective of an observer at the ECB, but the Bank of England is facing public criticism in the UK for a course of its monetary policy which is perceived as too expansive”, says Dirk Chlench, LBBW analyst. . The central bank had already moved to a rate hike path in December 2021 and therefore earlier than other central banks of major countries.

Experts say the inflation spurt in the UK is likely to last longer than in many other economies. The country’s exit from the European Union also plays a role, which affects trade, among other things. The Bank of England expects consumer prices to rise further in the coming months. Price increases are expected to push inflation even further to around 13% in the fourth quarter, according to the central bank’s report released today.

Recession expected in the fourth quarter

Monetary authorities believe that the UK is likely to enter recession in the fourth quarter of this year. Unemployment could also rise from next year.

Financial markets were ready for the BoE to follow the lead of the European Central Bank (ECB). It recently started its major interest rate recovery and also raised the key interest rate by 0.5%.

Central banks around the world under pressure

Central banks around the world are under pressure to rein in high inflation rates, which are currently being driven by soaring energy costs and supply chain issues. The US Federal Reserve (Fed) raised its key rate by 0.75 percentage points for the second consecutive time.

Rising commodity and tradable goods prices would put upward pressure on global consumer prices, according to the Bank of England report. However, forecasts for global inflation and economic sustainability are associated with considerable risks and depend above all on the evolution of geopolitical tensions.


Source www.tagesschau.de

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