TIMES.KY

Cayman Islands, Caribbeanand International News
Thursday, Jan 26, 2023

Bank of England raises interest rates to 0.75% as inflation soars

Bank of England raises interest rates to 0.75% as inflation soars

Threadneedle Street reacts to prospect of Ukraine war pushing UK inflation peak to 10%

The Bank of England has responded to the likelihood that the war in Ukraine will push inflation to around 10% this year by raising interest rates back to the pre-pandemic level of 0.75%.

Threadneedle Street’s monetary policy committee (MPC) voted 8-1 to increase borrowing costs by 0.25 percentage points – the first time the Bank has raised rates at three successive meetings in more than two decades.

The Bank said Russia’s invasion had forced it to rethink its forecast for the peak of inflation this year and it was now expected to be “several percentage points” higher than the 7.25% it had previously forecast.

There had been speculation before the meeting that some MPC members might opt for a half-point increase, but only one – Jon Cunliffe – dissented from the majority by voting to keep interest rates on hold.

The other eight MPC members decided fresh action was needed to return inflation – currently at a three-decade high of 5.5% – to the government’s 2% target. They stressed the tightness of the labour market and upward pressures on costs and prices.

Minutes of the meeting are likely to stoke fears that the economy is heading for a period of stagflation – weak growth and strong upward price pressures.

“Developments since the February report are likely to accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes,” the Bank said.

“Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the UK, is likely to slow.”

The Bank said growth in January had been stronger than expected but consumer confidence was being hit by falling living standards. “That impact on real aggregate income is now likely to be materially larger than implied in the February report, consistent with a weaker outlook for growth and employment, all else equal.”

Despite strong inflationary pressure, the Bank adopted a less aggressive tone about future rate increases than the US Federal Reserve, which is pencilling in a further six increases in borrowing costs this year. The MPC said a further “modest” tightening of policy could be needed over the coming months, depending on the medium-term outlook for inflation.

The Bank thinks the annual inflation rate will rise to around 8% in the second quarter of 2022, and perhaps even higher later this year.

There was a risk that, if sustained, rising energy prices would lead the UK energy regulator Ofgem to push its price cap “substantially” higher in October.

“This could temporarily push inflation around the end of this year above the level projected in April, which was previously expected to be the peak. Further out, inflation is expected to fall back materially, as energy prices stop rising and as the squeeze on real incomes and demand puts significant downward pressure on domestically generated inflation.”

The Bank said it could do nothing to prevent higher prices for energy and other commodities hitting living standards.

“The economy has recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine is another such shock,” it said.

The Bank raised rates for the first time in December, from 0.1% to 0.25% and increased them further – to 0.5% in February.

Newsletter

Related Articles

TIMES.KY
Close
0:00
0:00
Prince Andrew and Virginia Giuffre Photo Is Fake: Ghislaine Maxwell
Opinion | Israel’s Supreme Court Claims a Veto on Democracy
Moonwalker Buzz Aldrin Gets Married On His 93rd Birthday
Who’s Threatening Israeli Democracy?
Federal Reserve Probes Goldman’s Consumer Business
China's first population drop in six decades
Microsoft is finalising plans to become the latest technology giant to reduce its workforce during a global economic slowdown
China's foreign ministry branch in Hong Kong urges British gov't to stop the biased and double standards Hong Kong report
Tesla slashes prices globally by as much as 20 percent
1.4 Million Copies Of Prince Harry's Memoir 'Spare' Sold On 1st Day In UK
After Failing To Pay Office Rent, Twitter May Sell User Names
Lisa Marie Presley, singer and daughter of Elvis, dies aged 54
FIFA president questioned by prosecutors
Britain's Sunak breaks silence and admits using private healthcare
Hype and backlash as Harry's memoir goes on sale. Unnamed royal source says prince 'kidnapped by cult of psychotherapy and Meghan'
Saudi Arabia set to overtake India as fastest-growing major economy this year 
Google and Facebook’s dominance in digital ads challenged by rapid ascent of Amazon and TikTok
FTX fraud investigators are digging deeper into Sam Bankman-Fried's inner circle – and reportedly have ex-engineer Nishad Singh in their sights
TikTok CEO Plans to Meet European Union Regulators
UK chaos: Hong Kong emigrants duped by false prospectus
France has banned the online sale of paracetamol until February, citing ongoing supply issues
Japan reportedly to give families 1 million yen per child to move out of Tokyo
Will Canada ever become a real democracy?
Hong Kong property brokerages slash payrolls in choppy market
U.S. Moves to Seize Robinhood Shares, Silvergate Accounts Tied to FTX
Effect of EU sanctions on Moscow is ‘less than zero’ – Belgian MEP
Coinbase to Pay $100 Million in Settlement With New York Regulator
FTX assets worth $3.5bn held by Bahamas securities regulator
A Republican congressman-elect is under investigation in New York after he admitted he lied about his education and work experience.
Brazilian football legend Pele, arguably the greatest player ever, has died at the age of 82.
Hong Kong to scrap almost all its Covid rules
EU calls screening of travellers from China unjustified
US imposes Covid testing for visitors from China
Ukraine President Volodymyr Zelenskyy Addresses Joint Session of Congress - FULL SPEECH
If a country is denied the right to independence by another, it is not in a union. It is in a dictatorship.
Where is Rishi? Chancellor Jeremy Hunt's excuses about the UK's economic challenges just don't make sense
Former FTX CEO Bankman-Fried finally arrested in Bahamas after U.S. files charges
Corruption works: House Financial Services Chair Waters doesn't plan to subpoena her donor, Sam Bankman-Fried, to testify at hearing on FTX collapse
Ronaldo's new contract...
Prince William's godmother resigns honorary royal role after exposing her/their racism
British PM Rishi Sunak pledges further action on strikes to 'protect lives'
Tax fraud verdict again exposes illusion of Trump the master businessman
Tax fraud verdict again exposes illusion of Trump the master businessman.
Double standards: UK lawmakers attack EU chief over Ireland claims
Yellen hints at ‘national security’ probe into Twitter purchase
Elon Musk reinstates Donald Trump's Twitter account.
George W. Bush and Barack Obama will hold back-to-back disinformation conferences
Mission Improbable: Tom Cruise & Queen Elizabeth
Miss Argentina and Miss Puerto Rico are not single anymore
Matt Hancock is back to the jungle
×