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Wednesday, August 17, 2022

Bank of England faces big interest rate hike

A survey of 65 economists published by the Reuters news agency on Monday showed that more than 70 percent of the participants expect an increase of half a percentage point to 1.75 percent for Thursday.

In the fight against escalating inflation, economists believe that the British central bank is facing the largest rate hike in its recent history. A poll by the news agency released on Monday Reuters among 65 economists found that more than 70 percent of respondents expect Thursday’s rate to rise by half a percentage point (50 basis points) to 1.75 percent. The survey ran from July 27th to August 1st.

In a survey conducted just a few days earlier, the majority of economists had only expected another small increase of a quarter of a percentage point. The Monetary Policy Committee (MPC) of Bank of England (BoE) has never raised the interest rate by half a point since the central bank gained independence from politics in 1997.

Inflation increased significantly

BoE boss Andrew Bailey recently said that such an increase is now “on the table”. On the financial markets, the probability of this is estimated at almost 90 percent. “We expect the MPC to increase the pace of tightening to 50 basis points,” said the bank’s expert Fabrice Montagne Barclays. The central bank must demonstrate determination in view of the ever-increasing inflation.

Fueled by skyrocketing energy costs and supply chain problems, consumer prices on the island have recently risen 9.4 percent – a 40-year high. The BoE has long since heralded the turnaround in interest rates and has already increased borrowing costs five times since December. This is to prevent the rise in inflation from taking hold in the economy. Because of persistently high inflation in the United States, the US Federal Reserve fed recently raised the key interest rate by 0.75 percentage points twice in a row.

(APA)

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