Bank of England Raises Interest Rates Amid Brexit Worries
Before the decision, policy makers at the Bank of England voiced concern about inflation, which, at 2.4 percent, is above the bank’s 2 percent target.CreditPeter Nicholls/Reuters
By Amie Tsang
Policymakers at the central bank voted unanimously to raise the benchmark interest rate a quarter of a percentage point on Thursday, to 0.75 percent, the highest it has been since February 2009.
Before the decision, they voiced concern about inflation, which, at 2.4 percent, is above the bank’s 2 percent target. And while wage growth appears to be relatively weak, the bank nevertheless anticipates an acceleration in price rises because the lowest levels of unemployment since 1975 will probably force employers to pay more to retain staff. A public sector raise announced at the end of July could also bolster wages and, by extension, inflation.
In its quarterly inflation report, which accompanied the rate-setting meeting, the Bank of England said inflation was most likely to fall slowly to about 2.1 percent in a couple of years.
But while the bank officially made the move in an effort to tackle inflation, it also clearly had another goal in mind: to give it wiggle room to cut rates in the future, particularly if Brexit, as the withdrawal from the European Union is called, deals a blow to the British economy.
Economists have warned that leaving the 28-nation bloc will hurt growth by restricting Britain’s access to its main trading partner. Those concerns have been amplified by a seeming lack of progress between London and Brussels on the post-Brexit trading relationship.
Such a “no-deal” outcome has raised alarm, sparking fears of traffic jams, shortages of food and medicine, and gridlock at ports.
As a result, the central bank has sought to add levers that can be used if some measure of stimulus is needed for the British economy.
“It’s cleaner for them to go now,” said David Owen, chief European economist at the investment bank Jefferies, referring to the rate rise. Mr. Owen said that as Britain neared its withdrawal, due in March, the Bank of England would have less time to raise rates, and that the political risks surrounding Brexit would be increased.
Like other central banks, the Bank of England has sought to dial back monetary stimulus put in place after the financial crisis.
But its efforts have been complicated by Brexit. Soon after the vote to leave the European Union in June 2016, the bank cut its benchmark interest rate to 0.25 percent, the lowest rate in its history, and increased its bond-buying program.
It eventually lifted the rate in November last year, depicting it as a response to higher prices but emphasizing that economic growth could remain sluggish. It has held back from further rises, however, after weak economic data at the beginning of the year prompted the bank’s monetary policy committee to wait and see how long such conditions would persist.
“Today’s rise in interest rates makes sense both from a short-term perspective and in terms of a sustainable long-term monetary strategy,” said Andrew Sentance, senior economic adviser at the professional services firm PwC.
source :Bank of England Raises Interest Rates Amid Brexit Worries
Before the decision, policy makers at the Bank of England voiced concern about inflation, which, at 2.4 percent, is above the bank’s 2 percent target.CreditPeter Nicholls/Reuters
By Amie Tsang
- Aug. 2, 2018
Policymakers at the central bank voted unanimously to raise the benchmark interest rate a quarter of a percentage point on Thursday, to 0.75 percent, the highest it has been since February 2009.
Before the decision, they voiced concern about inflation, which, at 2.4 percent, is above the bank’s 2 percent target. And while wage growth appears to be relatively weak, the bank nevertheless anticipates an acceleration in price rises because the lowest levels of unemployment since 1975 will probably force employers to pay more to retain staff. A public sector raise announced at the end of July could also bolster wages and, by extension, inflation.
In its quarterly inflation report, which accompanied the rate-setting meeting, the Bank of England said inflation was most likely to fall slowly to about 2.1 percent in a couple of years.
But while the bank officially made the move in an effort to tackle inflation, it also clearly had another goal in mind: to give it wiggle room to cut rates in the future, particularly if Brexit, as the withdrawal from the European Union is called, deals a blow to the British economy.
Economists have warned that leaving the 28-nation bloc will hurt growth by restricting Britain’s access to its main trading partner. Those concerns have been amplified by a seeming lack of progress between London and Brussels on the post-Brexit trading relationship.
Such a “no-deal” outcome has raised alarm, sparking fears of traffic jams, shortages of food and medicine, and gridlock at ports.
As a result, the central bank has sought to add levers that can be used if some measure of stimulus is needed for the British economy.
“It’s cleaner for them to go now,” said David Owen, chief European economist at the investment bank Jefferies, referring to the rate rise. Mr. Owen said that as Britain neared its withdrawal, due in March, the Bank of England would have less time to raise rates, and that the political risks surrounding Brexit would be increased.
Like other central banks, the Bank of England has sought to dial back monetary stimulus put in place after the financial crisis.
But its efforts have been complicated by Brexit. Soon after the vote to leave the European Union in June 2016, the bank cut its benchmark interest rate to 0.25 percent, the lowest rate in its history, and increased its bond-buying program.
It eventually lifted the rate in November last year, depicting it as a response to higher prices but emphasizing that economic growth could remain sluggish. It has held back from further rises, however, after weak economic data at the beginning of the year prompted the bank’s monetary policy committee to wait and see how long such conditions would persist.
“Today’s rise in interest rates makes sense both from a short-term perspective and in terms of a sustainable long-term monetary strategy,” said Andrew Sentance, senior economic adviser at the professional services firm PwC.
source :Bank of England Raises Interest Rates Amid Brexit Worries
