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Bank of England raises interest rates sharply for second time in a row

David Milliken

LONDON (Reuters) – The Bank of England appears set to raise interest rates by at least half a percentage point on Thursday in a bid to curb just-ended inflation amid currency depreciation and Against the background of government discretionary spending, it hit a new high in 13 year.

Economists polled by Reuters last week expected the Bank of England to announce at GMT 150 Interest rates will rise to 2. 25% from 1.%, while prices in financial markets have risen sharply to 2.5%.

The Bank of England is also expected to confirm that it will soon sell some 944 billion pounds ($944 billion) government bonds, bought in more than a decade of quantitative easing — the first major central bank to do so.

The Bank of England raised interest rates by 0.5 percentage points last month, the largest increase since 1995. A three-quarter point hike on Thursday would be the largest rate hike since 1992, except in 1992.

The Federal Reserve on Wednesday raised its main interest rate by three-quarters of a percentage point and signaled more hikes ahead.

GBP/USD fell to its lowest level since 1985 after Fed decision and fell to against a basket of currencies , the lowest level since , pushing up import prices.

Central banks around the world have been raising interest rates in response to inflation caused by soaring energy prices after Russia’s invasion of Ukraine and since COVID-19 19 Supply chain pressures and labor shortages since the pandemic.

Beginning in December last year, the Bank of England was the first major central bank to raise interest rates in the current cycle.

UK’s annual consumer price inflation edged down to August from 19 year high 25 up 9.9% .1%, the first decline in nearly a year but still well above the Bank of England’s 2% target, is the highest in the G7.

Mixed inflation outlook

The short-term outlook for inflation is now somewhat better than at the last BoE meeting in early August.

Capped household and business energy tariffs by new Prime Minister Liz Truss means inflation is unlikely to rise 15.3% Bank of England expected peak October, or more than economists had expected earlier 19% 2020% .

However, the cap – plus possible tax deductions for employment, business profits and potential home purchases – exceeds 150 billion pound stimulus package, not factored into the Bank of England’s forecast last month.

This, in turn, could prompt the Bank of England to raise interest rates more than previously expected in the coming year, although high inflation will still weigh heavily on living standards.

“While the risk of an imminently approaching winter recession is reduced, substantial fiscal stimulus raises the risk of higher inflation continuing for a longer period – so a significant Bank of England policy tightening may ultimately be required,” Investec Economist Sandra Horsfield

Wednesday evening interest rate futures indicated that the Bank of England rate hit 3 in December.150% and in 4.40% in March.

New Finance Minister Kwasi Kwarteng will lay out more details of the budget plan on Friday, including an update on the debt issuance.

Last month, the Bank of England forecast that the economy will enter a recession in the last quarter of 2022, and will remain in recession throughout 2022 shrink.

Economists say that timing now looks unlikely, but there are risks — following a contraction in the second quarter and weaker retail sales and business survey data — that the economy has already into a technical recession.

A public holiday to commemorate Queen Elizabeth’s funeral will also reduce production in the third quarter after more than a week of national mourning led to the cancellation of some public events. The Bank of England also decided to delay its policy announcement scheduled for September by a week .

($1=0.8876 pound sterling)




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