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Thursday, September 29, 2022

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Bank of England raises its rate half a point, to 2.25%, and forecasts recession in the third quarter

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The Bank of England announced on Thursday that it raised its interest rate by half a point, to 2.25%, a notable increase but lower than what some analysts expected, and warned that it expects the British economy to contract between July and September for the second consecutive quarter. .

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Of the nine members of the Monetary Policy Committee (MPC), “five voted in favor of an increase of half a point”, to 2.25%, explained the Bank of England in a statement, in which it noted that British inflation will record a peak which will touch 11% in October, less than what was expected until now (13%).

Three members of the committee favored a 0.75 percentage point hike, while only one favored a smaller hike of just 0.25 percentage points.

The committee meeting was originally scheduled for last week but was postponed following the announcement of Queen Elizabeth II’s death.

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Although the Bank of England started its rate hikes at the end of 2021, before most central banks, in September it acted more slowly than the European Central Bank (ECB) and the US Federal Reserve (Fed), which announced 0.75 point increments.

The divisions in the MPC in the United Kingdom reflect the doubts of central banks around the world, which seek to curb rampant inflation, caused by the spike in energy prices since the start of the war in Ukraine, but fear sinking the world economy barely recovering from the covid-19 pandemic.

In the last 24 hours, in addition to the Fed, other central banks, such as Switzerland or Norway, raised their policy rates.

In the UK, uncertainty is particularly high due to the budget announcements that the new government of Conservative Prime Minister Liz Truss will announce on Friday.

Source: Gestion

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