The two major European central banks raised interest rates Strongly on Thursday, they opted for bigger hikes from the US Federal Reserve as inflation in the region remained near historically high levels.
The European Central Bank (ECB) and the Bank of England raised interest rates by another half percentage point. Benchmark interest rates for both are at their highest levels since 2008.
Across the Atlantic, the Federal Reserve cut interest rate hikes on Wednesday It rose only a quarter of a point as it concluded that it was making progress Fight against inflation
The European Central Bank said it expected to raise interest rates further and “intended” to raise them by another half a percentage point in March. Although inflation in the 20 countries that use the euro eased in January, it remains at 8.5 percent, well above the Bank’s inflation rate. 2 percent target
Speaking to reporters after the announcement, European Central Bank President Christine Lagarde pointed to the recent sharp drop in energy prices, but said the fight to contain inflation must continue.
“Core inflation has come down and more than we expected and many expected,” he said. “But there is underlying inflationary pressure, alive and well, which is why … I would say we have more ground to cover and we’re not done.”
UK inflation has also eased, reaching 10.5% in December, but remains close to a 41-year high.
The Bank of England has a very difficult task on its hands: prices are rising rapidly, while at the same time Britain faces the risk of recession, and rising rates will reduce inflation and economic growth.. Britain will be the only major economy to contract this year, the International Monetary Fund predicted on Tuesday.
Bank of England said UK Inflation is likely to ease sharply for the rest of the year, largely because past increases in energy and other prices have been factored out. But it showed considerable uncertainty about its prediction.
The bank said in a statement: “The labor market remains tight, and domestic pressures on prices and wages have been stronger than expected, indicating further risks to underlying inflation.”.
Furthermore, Wholesale energy prices may push up UK inflation more than expected.
Across the UK economy as a whole, the Bank of England was more upbeat, forecasting a 0.5% contraction in output this year, compared with a 1.5% contraction forecast in November. This is broadly in line with the latest IMF forecast.
The European Central Bank also released details on the tapering of its asset purchase program, stressing that its assets will be reduced by an average of 15 billion euros ($16.5 billion) a month from March to the end of June.