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London: Britain’s central bank on Thursday raised interest rates to a pre-pandemic level to counter inflation, which it says may exceed 8% in 2022, but is concerned regarding the consequences of the invasion of Ukraine on growth.
The Central Bank announced in its meeting minutes that “the Monetary Policy Committee voted to raise the interest rate by 0.25 points to 0.75%.” This is the third time in a row that it has tightened its policy.
It justified its decision by “the tension in the labor market and the continuing indicators of costs and inflationary pressures and the risks of their continuation.”
Interest rate
A day ago, the Federal Reserve raised interest rates for the first time since the start of the pandemic, while the European Central Bank chose to let time judge things.
For all central banks, the war in Ukraine presents a new dilemma: the disruption of the market for energy and other raw materials (wheat and aluminum) is driving up prices, exacerbating the already-accelerating inflation even before the conflict.
The Bank of England warned that it was also “likely” that the war in Ukraine would “impair the supply chain”.
He also warned that “inflationary pressures will increase significantly in the coming months while growth is expected to slow in net energy importing countries such as the United Kingdom.”
Therefore, central bank governors must choose between maintaining highly flexible monetary policies while risking prolonged inflation, or raising interest rates, affecting both the ability to borrow and the credit of individuals and companies alike.
