The Bank of England has reportedly announced a hike in the interest rates by a quarter of a percentage to 4.25%, amid the ongoing inflation in the UK. This is an indicator that Britain’s economy is holding stronger than expected. The Bank’s monetary policy committee voted seven to two in favor of increasing the base rate for the 11th time in a row.
The UK inflation rates increased unexpectedly in February to 10.4% over 10.1% in January. This was caused by food prices increasing at the fastest pace in 45 years. The rates have increased 4.15 percentage points since December 2021.
The Bank has withdrawn its projection of a technical recession and is claiming that the GDP of UK is getting back on track with a potential increase in Q2 2023, after previously predicting a drop in activity by 0.4%.
Governor of the Bank of England, Andrew Bailey, has stated that there were signs that the price fluctuations were approaching a peak. He further opined that they may come down significantly, which could potentially be seen from the early summer onwards.
Central banks in both the UK and the U.S. have increased their interest rates in in spite of the fears associated with the collapse of SVB and Credit Suisse’s government-backed rescue by its rival UBS. The US Federal Reserve raised its benchmark interest rate by a quarter of a percentage point to a 4.75%-5% range.
The Bank of England has been closely observing the economic effect of the stir in the banking industry, adding that it would include a full-fledged assessment in its upcoming economic update. Governor Bailey has also claimed that the banks in UK are at a better, stronger position than they were 15 years ago. Economists are of the opinion that there would not be any need to increase the interest rates further, given that headline inflation is already set to fall sharply.
Source credit: https://www.theguardian.com/business/2023/mar/23/bank-of-england-raises-uk-interest-rates-inflation