Bank of England expected to raise interest rates after Fed hike – at noon GMT

With inflation worryingly high, and the banking system in turmoil, these are difficult times for central bankers.

And today, the Bank of England will reveal whether it had pushed up UK borrowing costs again, or left interest rates on hold at 4%.

Yesterday’s shock rise in UK inflation, to 10.4%, has left many investors expecting the BoE’s Monetary Policy Committee to lift Bank Rate by a quarter of one percent today, to 4.25%.

That would be the 11th interest rate increase in a row, extending a tightening cycle which began in December 2021.

But Bank policymakers may be wary of pushing interest rate higher, as the problems in the banking sector this month have shown that the impact of last year’s interest rate increases are being felt now.

The BoE could plum for a ‘dovish hike’ – lifting borrowing costs, while signalling that rates could be near their peak. But that would be more palatable if inflation wasn’t in double-digit levels.

Ellie Henderson, economist at Investec, explains:

When deciding the appropriate level of the Bank rate the MPC will have to assess which is the lesser of two evils: the risk of inflation being higher for longer or the current threat to financial stability stemming from the rapidly evolving fears of a banking crisis. In an environment where inflation is reaccelerating, the question is whether the MPC will continue to raise interest rates or opt for a wait-and-see approach given the events that have unfolded over the past week or so.

Last night the US Federal Reserve lifted its key rate by a quarter-point, as America’s central bankers weighed up the worst banking crisis since 2008 and the highest inflation rate in a generation.

But, the Fed also indicated it was on the verge of pausing further increases in borrowing costs amid the recent turmoil in financial markets, although it does not expect to cut rates anytime soon.

Source: The Guardian