Britain braces for biggest hike in interest rates in 27 years

Former Chancellor of the Exchequer Rishi Sunak says that would fan inflation, forcing interest rates to go even higher…reports Asian Lite News

The Bank of England is expected to step up its fight against inflation in the coming week, joining some 70 other institutions around the world in delivering a half-point increase in borrowing costs.

The move anticipated by most analysts and investors would mark the UK’s biggest increase in interest rates in 27 years and accelerate a historic pivot away from the era of cheap money. Governor Andrew Bailey has suggested the hike won’t be the last, saying policy makers are prepared to act “forcefully,” if necessary, to rein in inflation.

The BOE was first among major-economy central banks to raise rates after the pandemic, but is struggling to keep up with the US Federal Reserve, which has delivered back-to-back 75 basis-point hikes. Key rates now stand at 1.25 per cent for the BOE, 2.5 per cent for the Fed, and zero at the European Central Bank, Bloomberg reported.

The UK central bank’s move will add to the pressure on contenders seeking to replace Boris Johnson as prime minister. Foreign Secretary Liz Truss has promised tax cuts if she wins the race to lead the ruling Conservative Party.

Former Chancellor of the Exchequer Rishi Sunak says that would fan inflation, forcing interest rates to go even higher.

With the BOE expecting prices to leap as much as 11% this year, consumers are feeling the sharpest squeeze in living standards in at least two decades and are calling for aid from the government. Even so, a half-point rate rise is no longer a sure thing. Risks of a recession prompted investors to pare back bets on a big hike on Aug. 4. They now see a 70 per cent chance of a move that size, down from near certainty just a week ago.

In the run-up to the BOE decision, manufacturing PMIs Monday and UK house prices on Tuesday are set to show a slowdown in the economy.

In Germany, which just reported a surprise stagnation for the second quarter, June factory orders and industrial production readings toward the end of the week are predicted to confirm that Europe’s biggest economy is on a weak footing.

On Thursday, the Czech central bank will decide on rates for the first time since the reconstitution of its policy-making board, with more dovish members replacing people who backed an unprecedented wave of nine interest-rate hikes since last year.

ALSO READ-Britain will have slowest growth in G-7, says IMF


Leave a Reply

Your email address will not be published.