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The Bank of England on Thursday raised its interest rate to 4 percent, the lowest level in fourteen years. The aim of this new rate hike is to fight inflation in the UK.
Inflation in the United Kingdom was more than 10 percent in December. This was more than the rest of Europe. Economic growth figures are worse than in continental Europe. The British are waiting for a recession (at least two quarters of contraction, the Bank of England expects five in a row), while the rest of Europe can avoid it.
The UK has been hit by high energy prices, rising food prices and the effects of Brexit. There will also be many strikes in early 2023 as major wage increases are not forthcoming in many sectors.
The Bank of England is trying to keep the country in calm waters by raising interest rates even after previous rate hikes. The interest rate will rise from 3.5 percent to 4 percent. The idea is that as a higher interest rate makes borrowing more attractive, spending will fall slightly and inflation will also fall.
The central bank expects inflation to moderate in 2023. The Bank of England has forecast inflation to be 9.3 per cent in the first quarter. Bankers don’t expect an acceptable level of 3.0 percent until early 2024.
On Wednesday evening, the US central bank, the Federal Reserve, had already issued a rate increase. Thursday afternoon ECB (European Central Bank) also announced an interest rate hike. The United States and the European Union are committed to controlling inflation, although not as much as the United Kingdom.
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