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The Bank of England will hike rates again amid uncertainty

Bank of England Governor Andrew Bailey speaks at the monetary policy report press conference in London
Bank of England Governor Andrew Bailey arrives to address the press conference on the Monetary Policy Report at the Bank of England in London, Britain, November 4, 2021. Justin Tallis/Pool via REUTERS

March 17, 2022

By Andy Bruce

LONDON (Reuters) – The Bank of England is expected to continue raising interest rates on Thursday in a bid to prevent rising inflation from taking hold in the UK economy.

All but five of 49 economists recently polled by Reuters believed the BoE will hike bank rates back to pre-pandemic levels of 0.75% for a third straight meeting, while the rest expect that it stays at 0.5%.

The BoE last month forecast that inflation will peak at around 7.25% in April – almost four times the Bank of England’s target of 2% – but that forecast has been thwarted by seismic shifts in Europe’s energy markets following Russia’s invasion of the UK Ukraine obsolete.

Investors will be alert to renewed thinking from rate-setters as they, like central bankers elsewhere, plan to deal with the competing forces of price pressures and slowing economic growth, which could even lead to a recession.

The US Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point, unveiling an aggressive plan to bring borrowing costs down to restrictive levels by next year as concerns about high inflation and the war in Ukraine heightened the risks of the coronavirus -pandemic predominated .

The European Central Bank, which is behind the BoE and Fed to reverse their pandemic stimulus, agreed last week to stop pumping money into markets this summer, paving the way for potential rate hikes in 2022 do.

“The war in Ukraine means UK inflation will remain high for longer,” said ING economists James Smith and Chris Turner. “Markets have concluded that the BoE will double down on its tightening plans.”

The Reuters poll of economists released Tuesday pointed to an average inflation rate of nearly 8% in the second quarter, which would be the highest rate since the early 1990s.

All nine members of the monetary policy committee were expected by most economists to vote in favor of a rate hike, but again there could be a split vote on the extent of tightening needed.

Last month, a narrow majority of five, including Governor Andrew Bailey, voted in favor of a 25 basis point rate hike rather than a larger 50 basis point hike. Accelerating action risks raising market expectations for future rate hikes, which are already enough to push inflation well below target for years to come, they said.

Those bets in the market have steepened over the last month and now point to a 2% bank rate by the end of next year.

Paul Hollingsworth, chief economist for Europe at BNP Paribas, said he expects growth concerns to come to the fore later this year, “suggesting market prices are way off the mark from six hikes through year-end.”

The four MPC members, who voted to raise interest rates by 50 basis points last month, feared high inflation risked interfering with firms’ and consumers’ price and wage expectations.

Last month’s data brought mixed news on this front.

According to surveys, the public’s inflation expectations have strengthened to new multi-year highs as the labor market has remained hot.

But a BoE report last week pointed to weak forecasts for household wage growth, incongruously with Governor Bailey’s appeal last month that people should show restraint when demanding a pay rise.

With investors also eyeing a budget update by Finance Minister Rishi Sunak next Wednesday, the British Chamber of Commerce said economic policymakers should be wary of an increased risk of recession.

“Raising interest rates and taxes at this point would further weaken the UK’s growth prospects by eroding confidence and weakening household and corporate finances,” said Suren Thiru, head of the BCC’s economics department.

(Reporting by Andy Bruce, Editing by William Maclean)

https://www.oann.com/bank-of-england-set-to-raise-rates-again-as-uncertainty-swirls/?utm_source=rss&utm_medium=rss&utm_campaign=bank-of-england-set-to-raise-rates-again-as-uncertainty-swirls The Bank of England will hike rates again amid uncertainty

DUSTIN JONES

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