It was the BoE’s turn to raise the interest rate by 25 basis points

The Bank of England (BoE) announced the fifth consecutive increase in its main bank rate, up to 1.25% to fight inflation, which is expected to exceed 11% in the United Kingdom in October.

The British central bank decided to increase its rate by 25 basis points, but said it was watching for signs of persistent inflationary pressures and will respond “with force” if necessary, according to the minutes of its monetary policy meeting.

After registering an annual inflation of 9% in April, a record in 40 years in the United Kingdom, the BoE estimates that it will exceed 11% in October, when the limit of the regulated price of electricity is reached.

As in the United States and the euro zone, prices soared in the United Kingdom due to the disruptions caused in production chains by the Covid-19 pandemic and the increase in energy prices since the start of the war. in Ukraine.

But the country, which began raising bank rates at the end of 2021, is also facing slowing growth, with the economy contracting for a second consecutive monthly month in April. The BoE forecast a 0.3% drop in Gross Domestic Product in the second quarter, before an even steeper decline later in the year.

This sluggishness in growth prevents the central bank from being more decisive in its monetary policy, unlike the Fed, which on Wednesday increased its rate by 75 basis points for the first time since 1994.

However, three of the nine rate-setters voted in favor of a bigger hike of 50 basis points, suggesting that the entity will be under pressure to continue with the hikes, even if economic growth slows. abruptly.

The United Kingdom is facing the consequences of Brexit, which disrupted the influx of European workers, at a time when the revival of the economy after the pandemic is causing strong demand and a wage war.

hikes spread

Europe’s central banks have also raised rates and hinted that the cost of borrowing will rise further, in a move aimed at reining in rising global inflation.

The Swiss National Bank and the Hungarian National Bank raised their rates by 50 basis points. In Switzerland the rate increased from -0.75 to -0.25% and in Hungary from 5.40 to 5.90 percent.

The Bank of Sweden increased it in May from a range of 0 to 0.25% while last week the National Bank of Poland raised it 75 basis points to 5.25%.

We are in a new era for central banks, in which reducing inflation is their only goal, even at the cost of financial stability and growth,” said George Lagarias, chief economist at Mazars Wealth Management.

For his part, Maike Currie, an economist at Fidelity International, mentioned that central bankers are walking a tightrope, amid concerns that raising rates too quickly could push economies into recession.

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