The Bank of England raised its interest rate on Thursday to 4 percent, the highest level in 14 years. The objective of this new rate hike is to combat inflation in the United Kingdom.
Inflation in the UK was still above 10 percent in December. This was even higher than in the rest of Europe. Economic growth figures are also worse than in continental Europe. The British expect a recession (at least two quarters of contraction, the Bank of England expects five in a row), while the rest of Europe can probably avoid one.
The UK suffers from high energy prices, rising food prices and the consequences of Brexit. Because large wage increases are not expected in many sectors, there will also be many strikes in early 2023.
The Bank of England is trying to put the country in calmer waters by further raising interest rates after previous rate hikes. The interest rate will increase from 3.5 percent to 4 percent. Because a higher interest rate makes borrowing less attractive, spending will drop slightly, and so will inflation—that’s the idea.
The central bank expects inflation to slow down in 2023. The Bank of England forecasts an inflation rate of 9.3 percent for the first quarter. Bankers do not expect a more acceptable level of 3.0 percent until early 2024.
On Wednesday night, the US central bank, the Federal Reserve, already announced an interest rate hike. On Thursday afternoon, the ECB (European Central Bank) also announced an interest rate hike. The United States and the European Union are also committed to limiting inflation, although it is not as high as in the United Kingdom.
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