The Bank of England announced a 0.5 percentage point rise in interest rates

The Bank of England raised interest rates for the seventh time in a row to 2.25 per cent, the highest level since 2008, in an attempt to contain nearly double-digit inflation.

The central bank’s nine-member Monetary Policy Committee (MPC) voted by five or three in favor of a 0.5 percentage point increase for the second consecutive meeting. The MPC challenged market expectations for a significant tightening of 0.75 percentage points.

The move comes ahead of tomorrow’s tax cut mini-budget as Kwasi Quarting, the finance minister, will announce a series of measures to reduce taxes and cut regulations to stimulate growth. The shift in fiscal policy, which includes an emergency rate cap on energy bills for households and businesses, is expected to support growth and keep inflationary pressures high in the year ahead.

UK consumer price inflation fell to 9.9 per cent in August from 10.1 per cent on the back of lower oil prices, but price setters tightened policy after signs that price hikes were spreading across the economy, raising the cost of food and services in the past. Month. The US Federal Reserve raised its benchmark interest rate yesterday by 0.75 percentage points for the third consecutive month.

The Monetary Policy Committee raised borrowing costs at the fastest pace in 30 years to fight price growth that is running at the highest level since the 1980s. The bulk of inflation in the UK can be attributed to the rise in global oil and gas prices after Russia’s invasion of Ukraine. Unemployment has also fallen to a record low, helping to push up domestic prices and wages.

Money markets expect the bank to have to go through the tightening cycle, bringing interest rates up to 4.5 per cent next year to reduce the impact of loose fiscal policy. Economists predict that the emergency rate cap for businesses and households will shorten the length of the energy-induced slump this winter.

Sir John Gieve has suggested the bank and government are going in different directions with Kwarteng preparing to announce tax cuts of more than £30 billion in the mini-budget, as the government freezes corporate tax, reversing the rise in National Insurance and cutbacks to tax charges.

“It really complicates things,” Jeff said. [The Bank] It will have to arm itself with raising interest rates a little faster than planned. The Bank of England is worried about inflation, it’s a massive overshoot. Demand in the economy exceeds supply.

They are trying to slow down the economy. The rhetoric that we have heard so far from the new government is that they want to speed it up by increasing borrowing.”

Albesh Baleja, chief economist at the Central Bank of Iraq, said: “Against the backdrop of high inflation, interest rates were largely expected to rise significantly.

While a freeze on the energy price ceiling will reduce peak inflation in the near term, price pressures remain strong and the MPC will be watching closely in the coming months.

“With signs of economic downturn on the right track, companies will look to the financial statement to help boost confidence and drive more companies to invest and grow.”

Commenting on the announcement, David Baharrier, head of research at the British Chambers of Commerce (BCC), said: “The Bank of England’s decision to raise the policy rate to 2.25% is further evidence that they are taking a hard line in dealing with inflation. Our research shows that persistent inflation, Driven in large part by rising energy costs, it is by far the biggest business concern at the moment.

But the bank faces an increasingly difficult balancing act. The interest rate is a very blunt tool for controlling inflationary pressures, which are largely driven by high energy costs and disruptions to the global supply chain. The bank’s decision to raise interest rates It will increase the risk to individuals and institutions of debt burdens and increased mortgage costs – reducing consumer confidence.

“The recent announcements of the energy price cap will provide some relief to businesses and households alike and should put downward pressure on the inflation rate.

Friday’s financial statement by the chancellor is now a critical moment. He has the unenviable task of supporting the economy while avoiding additional inflationary stimulus.

“The bank is looking to reduce consumer demand, and the government, looking to increase growth, can go in opposite directions.

“What companies will want to see is a plan to address the short-term drivers of inflation as well as a long-term strategy to boost investment that gives them confidence in the future and counteracts the stagnation caused by high interest rates.”

Giles Coghlan (Senior Market Analyst, HYCM) added his comments regarding the announcement, saying: “Today’s decision by the Bank of England (BoE) to raise the policy rate by 50 basis points was a disappointment for STIR markets which saw a 93% chance. The 75 point rise in Second.This resulted in an immediate sell-off of the Pound after the Bank of England’s release.With inflation at its highest level since the early 1980s, the Monetary Policy Committee (MPC) has to act decisively to try to tackle the problem of inflation.

“However, by getting too hawkish on inflation, there is a risk that the BoE will stagnate growth in the UK, which is probably why the BoE is taking a more conservative approach today. Since their last meeting, Liz Truss revealed the energy package The emergency which is expected to cost around £100 billion.According to Governor Bailey, a UK energy price guarantee will significantly curb further inflation, supporting demand compared to the August forecast.With the Federal Reserve raising its base level by 75 basis points Last night for the third time in a row, raising the final interest rate to 4.6% versus the previous final rate of 3.8%, the Bank of England may have resisted the urge to take the same approach to be more aware of the upcoming UK recession.

“With the Pound already on its knees, there is a risk that the BoE decision will create a stagflationary environment in the UK by raising growth rates as growth slows. With this in mind, the performance of the Pound after today’s decision must be closely monitored by All investors as there is still more selling tendency for the British pound going forward. All eyes are now on the mini-budget tomorrow.”

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