The UK central bank may choose to raise rates by up to 1 per cent to show it is serious about tackling inflation
The UK central bank may choose to raise rates by up to 1 per cent to show it is serious about tackling inflation
The Bank of England has announced its biggest interest rate hike in three decades as it tries to to beat stubbornly high inflation Russia’s invasion of Ukraine and inspired by the disastrous economic policies of Former Prime Minister Liz Truss,
After consumer price inflation returned to a 40-year high in September, the bank raised its key rate by three-quarters of a percentage point to 3% on November 3.
aggressive move To prevent inflation from getting embedded in the economy That was in line with market expectations after a more cautious half-point rise six weeks ago.
The interest rate decision is the first since Ms Truss’s government announced a 45 billion pounds ($52 billion) unfunded tax cut, which caused turmoil in financial markets, raised mortgage costs and left Ms Truss only Forced out of office after six weeks.
His successor, Rishi Sunak, has warned of spending cuts and tax hikes as he seeks to undo the damage and show Britain is committed to paying its bills.
The rate hike is the Bank of England’s eighth consecutive and largest since 1992. This comes after the US Federal Reserve on November 2 announced a three-quarter-point jump for the fourth time in a row as central banks tackle worldwide inflation that is lowering living standards and slowing economic growth. growth.
Earlier in the day, Luke Bartholomew, senior economist at Aberdon, said, UK Central Bank It may choose to raise rates by as much as 1 per cent to show it is serious about tackling inflation after facing criticism for its slow response earlier this year.
“The Bank of England will try to look at the volatility caused by government policy and volatility in gas prices, and will focus on underlying inflationary pressures,” Mr Bartholomew said in a note to investors. “However, given the risk to household spending and inflationary expectations of such large inflationary moves, it adds a further complication to an already very difficult policy decision for the Bank.”
Central banks have struggled to control inflation after initially believing that price increases were being driven by international factors beyond their control. His reaction intensified in recent months as it became clear that inflation was becoming embedded in the economy, feeding through demand for higher borrowing costs and higher wages.
The war in Ukraine boosted food and energy prices around the world as shipments of natural gas, grain and cooking oil were disrupted. This added to inflation which started accelerating last year as the global economy began to recover from the COVID-19 pandemic.
Rise in natural gas prices
Britain has also struggled as wholesale gas prices increased five-fold in the 12 months through August. While prices have fallen by more than 50% since the August peak, they are likely to rise again during the warm winter season, worsening inflation.
The British government sought to shield consumers with a cap on energy prices. But after the turmoil caused by Ms Truss’s economic policies, Treasury chief Jeremy Hunt capped the price range for six months instead of two years ending March 31.
Meanwhile, food prices rose 14.6% during September due to rising costs of staples such as meat, bread, milk and eggs, the Office for National Statistics said. This pushed consumer price inflation back to 10.1%, the highest since the beginning of 1982 and the previous level in July.
Rising prices of tea bags, milk and sugar mean that the “polite” cup of tea, which people across the country turn to when they need a break from the pressures of daily life, is becoming more expensive, British Retail Consortium 2 said on november
Helen Dickinson, chief executive of the consortium, said, “While some supply chain costs are beginning to ease, this is more than offset by energy costs, meaning a tough time for retailers and households.”
Ms Truss’s failed economic plan worsened the situation, plunging the pound to a record low against the dollar, threatening the stability of some pension funds and triggering predictions that the Bank of England will raise interest rates higher than expected. will increase more than This increased mortgage costs as lenders re-price their products.