The Bank of England announced today that it would raise interest rates by another quarter percentage point (0.25) to 0.75%, with forecasts pointing towards 8% inflation late next month.
The Monetary Policy Committee voted by a majority of 8-1 to increase #BankRate to 0.75%. https://t.co/RKxtjPGONr pic.twitter.com/raETKSADZ5
— Bank of England (@bankofengland) March 17, 2022
Based on statistics from the Office for National Statistics, inflation in the UK is at its fastest rate for approximately 30 years, and the conflict in Ukraine could nudge that rate even higher. Despite the conflict though, today's rate rise was expected, and more are expected later this year depending on the economy's response and other factors.
Inflation in the UK is already noticeable for the public on purchases such as food and fuel, but the UK's 5.5% and the EU's 5.6% pales compared to the US' current 7.9% inflation. This growing inflation drove the Federal Reserve to its first rate rise since 2018 and a 0.25 point rise from what was near zero interest – a staggeringly low rate designed to combat recession at first and then held in place for the pandemic.
The forecast for 2022 is for a further six interest rate rises by the Fed, presumably taking interest rates up to 1.5% – 1.6% overall. Speaking to the press last night, Fed chairman Jerome Powell said: “I’m old enough to remember what very high inflation was like. We’re strongly committed as a committee to not allowing this higher inflation to become entrenched.”
Some industry experts are worried this will stifle growth, though given inflation is building from more growth and demand than supply can handle it's hard to back that train of thought just yet – hence a flurry of predictions for a US recession in 2023 or 2024.
Given the strong impact of US financial decisions on the rest of the world, it won't be too much of a surprise to see similar action from the European Central Bank in the near future, and future rises from the Bank of England roughly in keeping with the Fed as states try to get a grip of what is no longer transitory inflation.