The BoE followed the US Federal Reserve with a quarter-point rate increase, but said inflation was likely to start slowing sharply this year.
, the BoE raised its benchmark interest rate 0.25 of a percentage point to 4.25 per cent, an 11th consecutive increase.
The BoE’s move came after the US Federal Reserve added another quarter-percentage point to its benchmark rate, taking it to a 16-year-high target range of 4.75 per cent-5 per cent. The European Central Bank last weekFollowing the collapse of two US banks and theby UBS, there are fears the world’s major central banks could go too far in fighting inflation, running the risk of triggering a full-blown financial crisis.
It said it was watching for more signs of inflationary pressure from Britain’s chronically tight labour market, even though it now expected wages to climb more slowly than it had earlier forecast. “The policy setting had become increasingly restrictive, [and] this would bring forward the point at which recent rate increases would need to be reversed,” the members reportedly said.The MPC said recent banking ructions had reversed a previous run-up in government bond yields, leaving the rates “broadly unchanged” since the BoE last met in February.
The BoE said it was still seeing weak demand for credit as companies reduced their leverage. Smaller businesses were struggling to access credit, but business investment plans were firming up.Although interest rates have risen almost 4 percentage points in the past year, the recent drop in energy prices meant Britain’s economy looked likely to start expanding slightly by the second quarter of 2023, rather than recording the 0.4 per cent contraction the BoE previously expected.
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