#inflationfighting #BoE #poised #big #rate #hike
The Bank of England is expected to follow other major central banks with an aggressive rate hike on Thursday to counter rising inflation.
The BoE is expected to hike interest rates by 0.50 percentage point – the largest amount in more than a quarter century.
UK inflation jumped to a four-decade high of 9.4 percent in June, compounding a cost-of-living crisis as workers’ wages failed to keep up.
With inflation soaring globally following Russia’s invasion of Ukraine, the US Federal Reserve and European Central Bank made large hikes of 0.75 and 0.50 percentage points, respectively, last month.
– “Up the Stakes” –
“After the ECB and Fed made outrageous rate hikes at their July meetings, the Bank of England is likely to feel similar pressure to up the ante at their August meeting,” BNP Paribas economist Amarjot Sidhu said in a statement Customers.
“We expect the Monetary Policy Committee to … implement the first 50 basis point hike since independence and signal its determination to prevent inflation from entrenching.”
The BoE, which was granted operational independence from the government over monetary policy in 1997, will announce its latest rate decision at 1100 GMT on Thursday, along with its latest outlook.
Governor Andrew Bailey has already said that this time a half-point hike – the largest since 1995 – will be “among the decisions on the table”.
That would bring the cost of borrowing to 1.75 percent, a level last seen in December 2008.
Consumer prices have soared as energy costs soared due to the invasion of Ukraine by key gas and oil producer Russia.
Inflation has also risen on supply chain issues, including post-Brexit labor market shortages and strong demand for goods and services as the Covid pandemic eases.
– Inflation scares central banks –
Still, the bank forecasts that UK inflation will rise to 11 per cent later this year – and was expected to raise that forecast on Thursday.
In addition, the state energy regulator Ofgem will raise domestic electricity and gas prices again in October.
This could push the average UK household electricity bill to over £3,000 ($3,600) a year.
“Rising energy prices…will force the BoE to upgrade its inflation forecast yet again,” said Fabrice Montagne, an analyst at Barclays.
“Even longer higher inflation is the kind of scenario that scares central banks.”
The BoE’s main task is to keep inflation close to a 2.0 percent target.
Economists, meanwhile, argue that a big rate hike will hurt the nation’s recovery from the coronavirus pandemic – and risk the prospect of a recession.
Rising interest rates inflict even more misery on businesses and consumers through increasing loan repayments.
“The … expected increase would be detrimental to the economy and would cause pain to people across the country,” said Nigel Green, chief financial adviser to deVere.
The BoE has raised interest rates five times since December, lifting them to 1.25% from a record low of 0.1%.
So far, the BoE has not hiked rates by more than 0.25 percentage points each time.
The rising cost of living has dictated the race for the position of Britain’s next prime minister.
Liz Truss is currently ahead of her Conservative and former Finance Minister Rishi Sunak in the polls.
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