Great Britain – Bank of England does not accelerate growth of rates, but declares that it is ready to act “with force”

Andy Bruce and William Schomberg

LONDON (Reuters) – The Bank of England (BoE) on Thursday announced a key interest rate increase of a quarter, the fifth increase since December, and promised to act “compulsorily” if necessary, facing the risks with inflation. that is expected to even exceed 11% in a few months.

The increase, which raises Britain’s key rate to 1.25%, is in line with the consensus of economists and analysts polled by Reuters last week, but the estimated probability of a half-point increase has risen significantly to almost 50% in recent days.

Therefore, the central bank has decided to continue to gradually strengthen its strategy, which it justifies by the prospect of reducing economic activity by 0.3% in April-June.

The decision was taken by six votes, with three members of the Monetary Policy Committee (MIC) voting in favor of a half-point increase.

The political rate in the UK is now at its highest level since January 2009.

In December, the Bank of England was the first major central bank in the world to start a cycle of raising interest rates, facing a deteriorating economic situation, combined with high inflation and slowing growth.

But some say the increase is too slow to curb inflation and prevent it from taking root in the economy due to rising wages and expectations of rising prices.

“The magnitude, pace and timing of any further increase in the political rate will reflect the Committee’s assessment of economic prospects and inflationary pressures,” the Bank of England said in a statement.

“The committee will pay particular attention to signs of sustained inflationary pressures and will react decisively if necessary,” he added.

“ESPECIALLY WEAK” Pound

Consumer price inflation in the UK reached 9% in April, the highest level in 40 years, and the Bank of England raised its forecast on Thursday, saying it now expects to peak just above 11% in October, when energy prices rise again.

The steady rise in inflation seems to last longer in the UK than in other economies, partly due to the backlog caused by the gas and electricity price mechanism and the impact of the country’s exit from the European Union on foreign trade.

The depreciation of the pound, which has been observed in recent weeks, is largely due to expectations of higher interest rates in the United States and the eurozone, and also threatens to fuel inflation.

The Bank of England also said in a press release that the pound was “particularly weak against the US dollar.”

The US Federal Reserve on Wednesday announced a three-quarters increase, the highest in the United States since 1994, and the Swiss National Bank (SNB), in turn, surprised markets on Thursday by raising its own interest rate. The key interest rate is 50 bases. points by -0.25%.

For its part, the European Central Bank (ECB) said last week that it was preparing to raise rates for its next two meetings, in July and September.

In the financial markets, the yield on British ten-year government bonds rose sharply minutes after the announcement of the Bank of England by 2.571%, while the pound fell by 0.84% ‚Äč‚Äčagainst the dollar to 1.2076.

Then on the London Stock Exchange, the FTSE 100 index was 2.41%.

(Report by William Schomberg and Andy Bruce, French version by Mark Angran)