Why the Bank resisted pressure to fight inflation harder – and what will happen next

0
91

Despite a false start last November – when the MPC stunned markets by keeping rates at an all-time high – the Bank has outpaced its biggest international peers.

But the US Federal Reserve, the sleeping giant of global monetary policy, recently awoke from its inflationary slumber.

The Fed is now raising rates at a much faster pace than the Bank, including a 0.75 percentage point increase on Wednesday. Although it started from a similar benchmark of 0.25%, compared to 0.1% for the Bank, the Fed funds rate is now at 1.75%, half a point higher than the discount rate.

See also  Ukraine war: Johnson says UK ready to demine to get grain out

The rise – which makes it more lucrative for investors to hold dollars – further bolsters the US currency, which was already supported by its credentials as a safe haven as markets sell off in response to global monetary tightening. It’s a vicious cycle for the pound, which has fallen to its lowest levels since the start of the lockdowns.

Markets expect the pace to pick up from here, pricing a series of half-point rates in the next three meetings, followed by another two-quarter-point hike to carry the rate to around 3.25% next year. However, the criticism of the MPC is built.

See also  Full EFL League One fixtures 2022/23: The fixture schedule for every team

“Although rarely used, the Governor’s eyebrows are still part of the Bank of England’s arsenal. Since my departure in 2013, mine have been resting. But the latest inflation rate of 9% has sent them skyrocketing,” Lord Mervyn King, the former Governor of the Bank, wrote in The Spectator on Thursday.

“It’s time to have a word with the members of the Monetary Policy Committee who, just last year, were in favor of negative interest rates.”

See also  Russian army in such chaos it faces battle with soggy toilet paper

.

LEAVE A REPLY

Please enter your comment!
Please enter your name here