The Bank of England (BoE) announced on Thursday the fifth consecutive increase in its core rate to a new record since 2009 to combat inflation which should, according to it, exceed 11% this fall.
The BoE did not decide to raise its rates by more than 0.25 points, unlike the US Federal Reserve, but it will be particularly attentive to indications of ongoing inflationary pressure, and will forcefully respond if necessaryhe said in the minutes of his meeting.
Forecasts for growth and inflation were not analyzed in detail at this meeting, but while inflation climbed to 9% in April, a 40 -year high, the BoE now expect a peak at more than 11% within a year in October, when the regulated ceiling for electricity prices will change upwards.
Slower growth in the UK
Like the United States or euro zone, prices in the United Kingdom are rising due to the disruption of production chains caused by the COVID-19 pandemic and the rise in energy prices since the beginning of Russia’s invasion of Ukraine.
But the country, which began raising rates by the end of 2021, also faced slowing growth, with a second consecutive monthly decline in economic activity in April.
The BoE now forecasts a 0.3% fall in gross domestic product (GDP) in the second quarter, where it still forecasts a 0.1% increase in May, a decline more than a recession already predicted for the last three months of the year.
Slow growth is therefore prohibitive BoE to be more determined in the face of rising prices, unlike the U.S. Federal Reserve (Fed) which raised its key rate three quarters of a point on Wednesday, the first since 1994.
The European Central Bank (ECB) held an extraordinary meeting on the same day to try to reassure the European debt market while keeping its rate hike scheduled for July.
Core inflation, excluding energy and food prices, is higher in the United Kingdom than in the euro zone or the United Statesrecognizes the BoE.
Recruitment difficulties remain high and so does the demand for workershe added, describing the labor market as always tenseeven though the unemployment rate in the United Kingdom rose slightly in the three months to the end of April, to 3.8%.
Analysts were divided
The United Kingdom is overcoming the consequences of Brexit, which has disrupted the arrival of workers in Europe, while the recovery after the pandemic is leading to strong demand and a wage war.
Three of the nine members of the Monetary Policy Committee (MPC), however, voted for a 0.5 -point rate increase, as in May, to avoid the recent trend of wage increases, company pricing decisions and inflation expectations settle permanently.
We think the BoE giving too much importance to the economic slowdown and insufficient to inflationworried Paul Dales, an analyst at Capital Economics, who pointed out the Bank promise nothingunlike the Fed, which is more specific about its rate hike plan.
Some analysts, on the contrary, welcome the measured tone of BoE : The MPC’s decision confirms that while other central banks are losing their minds, the Committee is maintaining a gradual approach.agrees Samuel Tombs, an analyst at Pantheon Macro.
A sign of observers ’ambivalence, the British pound swayed, temporarily losing more than 1% against the dollar before stabilizing to more moderate declines.
Barometer of the dark expectations of analysts and forex traders for the British economy, it has melted by 10% since the start of the year.
France Media Agency
Source: Radio-Canada
