The Bank of England is ready to significantly increase interest rates to curb inflation

LONDON (AP) — The Bank of England is expected to raise interest rates by half a percent on Thursday as it seeks to rein in double-digit inflation that is fueling a cost-of-living crisis and public sector strikes. and fear of stagnation

This move will bring the UK’s key rate to 4%. Economists believe this could be the last major rate hike for the Bank of England, which has approved 10 consecutive hikes. Since the post-pandemic surge in the global economy and Russia’s war in Ukraine It raised inflation to the highest level in the last 40 years.

The US Federal Reserve has already started tapering its response, raising its key rate by only a quarter. On Wednesday, meanwhile, the European Central Bank is expected to hike againwith a half point walk on Thursday.

Optimism rose after UK inflation fell for the second consecutive month. It reached 10.5 percent in December, down from a peak of 11.1 percent in October. That figure is still much higher than in the United States and the 20-nation euro zone, where inflation eased to 6.5 percent. in December and 8.5 percent in JanuaryRespectively.

By increasing the cost of food and services And with wages rising more than expected, most economists expect the Bank of England’s Monetary Policy Committee, or MPC, to send a message that it is serious about fighting inflation. But it is likely to be a close call, with some economists suggesting the Bank will choose a quarter point rise in its key rate as energy prices. Autumn and concerns about slow economic growth are in the spotlight.

“We expect the MPC to raise the Bank Rate by 4% in February – possibly its last ‘forced’ increase in the contractionary cycle,” Sanjay Raja, Deutsche Bank’s chief UK economist, said in a note to clients. But “with inflation now past its peak and forward-looking data still pointing to weak growth and easing price pressures, the MPC could start to slow rate hikes sooner rather than later.”

After more than a decade of record low interest rates, the Bank of England began raising borrowing costs in December 2021, when its prime rate was just 0.1%. The bank stepped up its fight against inflation last year, approving four major hikes of half a percentage point or more since August to push rates to 3.5 percent.

Inflation rose after Russia’s invasion of Ukraine, which sent food and energy prices soaringled to the biggest drop in living standards in Britain since the 1950s. It has sparked a wave of strikes – including the biggest day of industrial action in more than a decade on Wednesday – as nurses, train drivers, border guards and teachers demand pay rises.. The government is trying to prevent wage increases that would trigger a second round of domestic inflation that is more difficult to contain.

Rising prices also stifle economic growth and strain public finances as the government spends billions of dollars. To help consumers and businesses affected by high energy costs this winter

Britain is on track to become the only major economy to shrink this year, the International Monetary Fund said this week.Even as the prospects for other parts of the world improve. The International Monetary Fund said the country’s gross domestic product was likely to contract by 0.6 percent in 2023, down from a previous forecast of 0.3 percent growth.

The Bank of England will release its updated economic forecasts on Thursday, and economists expect a more optimistic picture from the International Monetary Fund as energy prices stabilize.

The price of natural gas in bulk In the UK, it is down 75% from its peak in late August, which will lead to lower costs for businesses and consumers in the coming months.

Martin Beck, chief economic adviser at economic forecasting group EY Item Club, said the central bank’s November forecast for a record two-year recession now looks too “bearish”.

“The significant fall in wholesale gas prices over the past few months means inflation should fall faster and the economy shrink less and for less time than the Bank of England predicted three months ago,” he said.

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