UK raises rates higher as Bank of England responds

In the UK, consumer prices are rising at The fastest speed in three decadesprompting investors to prepare for something that hasn’t happened in more than 17 years: the Bank of England raised interest rates in a row.

Markets are expecting a 25 basis point increase to 0.5% when the central bank announces its latest policy decision late on Thursday. It comes after the annual inflation rate rose to 5.4% in December, the highest since 1992 and well above the central bank’s 2% target.

The worry is that businesses and consumers will begin to assume that these cost increases will continue, prompting workers to demand higher wages in return and businesses to continue to raise prices, boosting prices. cyclical causes higher inflation rates in the long run.

“What monetary policy needs to do now is rein in expectations of 2022 wage and price increases to prevent them from being embedded in business and consumer decision making.” Catherine Mann, a member of the bank’s rate-setting committee, said in January. She voted along with seven others on the nine-man committee to rate hike at their last meeting, in December. The central bank needs to “rely on” expectations that can keep inflation rates higher than previously forecast throughout the year, she added.

Inflation is not expected to peak until April, after the government raised the ceiling on electricity and gas bills. Now, inflation has raised fears of a cost of living crisis in the UK, as the budgets of households, especially those on low incomes, are squeezed by rapid food price inflation. most in a decade, higher energy bills and other additional costs.

Brian Hilliard, chief British economist at Société Générale, writes in a note to clients. He predicts that the bank will announce rate hikes on Thursday, and again in May and August.

Inflation is increasing rapidly in the United States and Europe. Last week, The Federal Reserve has signaled it will start raising interest rates soon, possibly as early as next month. Later on Thursday, the European Central Bank will announce its latest policy decision after inflation in the euro area rises to 5.1 percent in January. Economists were predicting a fall in the exchange rate.

The Bank of England on Thursday will also release updated economic and inflation forecasts. In December, the bank said the rapidly spreading variant of Omicron, government measures to control the virus and voluntary social distancing would slow the recovery in December and early this year.

However, policymakers and investors were more concerned focus on the path of inflation. As recent readings beat expectations, markets have priced in about four more times this year. But the Bank of England has surprised market participants twice recently – in November, when they did not raise rates, and in December, when they did.

The 15 basis points increase to 0.25 percent in December was the first level in three and a half years. That comes a day after the central bank completed its latest bond-buying program, bringing its total holdings of government and corporate bonds to £895 billion.

https://www.nytimes.com/2022/02/03/business/economy/bank-of-england-rates.html UK raises rates higher as Bank of England responds

Fry Electronics Team

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