The head of the British central bank does not rule out another rate hike.
(Photo: Reuters)
London The Bank of England (BoE) is defying persistently high inflation with another rate hike. It raised the key monetary rate by a quarter-point to 4.5 percent on Thursday.
Great Britain is the only country in Western Europe to struggle with double-digit inflation rates. The central bank’s monetary policy to date has not had any resounding success.
Economists interviewed by the Reuters news agency had therefore expected interest rates to be of this magnitude. It was the twelfth increase in a row.
Before that, the interest rate was just above the zero line. The key interest rate is currently at a 15-year high.
With the interest rate hike, the BoE is following in the footsteps of the Federal Reserve in the USA, which is likely to be heading for a pause in view of the continued containment of the risk of inflation. However, it remains uncertain whether the central bank in London has already reached the end of the road in terms of tightening monetary policy.
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In the BoE, the current hike was controversial. Two members of the Monetary Policy Committee, Swati Dhingra and Silvana Tenreyro, voted for unchanged interest rates.
Further tightening may be required
The experts at the US investment bank Goldman Sachs assume that interest rates will continue to rise – up to 5.0 percent in August. The persistently high inflationary pressure speaks in favor of this, as does the relatively robust economy, which has not slipped into the recession feared by many economists.
Even the central bank no longer expects such a downturn in the economy. At the same time, she expects inflation to fall more slowly than hoped.
“Should there be signs of sustained pressures, further tightening would be required,” the BoE said. It thus maintained the monetary policy guidelines for the financial markets that it had already issued in February and March.
Part of the surge in inflation is due to the country’s heavy dependence on imported natural gas for energy production, which has become much more expensive as a result of the Ukraine war. This statistical effect is likely to play a less important role in the inflation figures for the coming months.
“Although inflation is likely to fall significantly in the coming months, there is still a risk that the second-round effects of the energy price shock on wages and domestically produced goods will recede more slowly,” says Dirk Chlench, an analyst at LBBW.
In addition, the most recent collective bargaining rounds at the central bank have raised concerns that increased wage pressure will build up. Then inflation should take hold across the board. “All in all, an additional step in June cannot be ruled out,” says Helaba economist Ulrich Wortberg.
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