Commerzbank economists offer their thoughts on the Bank of England’s latest monetary policy decision, announced this Thursday. The UK central bank announced the sixth rate hike in the current cycle and raised its key interest rate by 50 basis points to 1.75%.
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“The reason for the strong increase is the increase in inflationary pressure. According to the Bank of England, the labor market remains tight and domestic cost and price pressures are high. The central bank now expects inflation to reach a peak of 13% in autumn. Inflation concerns obviously outweigh economic slowdown: BoE expects UK recession from Q4.”
“The BoE will take the necessary decisions to return inflation to the 2% target, he said. To do this, the Committee will be especially attentive to signs of more persistent inflationary pressures and, if necessary, act forcefully in response.”
“In our opinion, the interest rate hikes made so far have not been enough to control inflation. At 1.75%, the bank interest rate has probably not even reached the “neutral level” where the economy does not neither driven nor held back, so we continue to expect further interest rate hikes to 2.75% in early 2023. However, following the latest sharp tightening and against the backdrop of a weak economy, we believe that it is likely that at the next meeting in September there will be another step of less than 25 basis points.”
Source: Fx Street
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