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Central banks around the world have put up borrowing costs to bring down inflation. The European Central Bank recently raised its main interest rate by 0.5 percentage points and US Federal Reserve has rapidly raised rates to a range of 2.25% to 2.5%.
Most economists support such efforts to bring down inflation, but there are growing calls for restraint as economies head for recession and unemployment levels rise, depressing business and consumer spending without the need for further interest rate rises.
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...and it is unusual to call a Recession of time. When Central Banks get together in Jackson Hole we might know more of what we know now.
Report appeared in The Guardian (with data and infographics)
...Blame it all on Russia??? Now that"s a convenient rude
Bank of England hikes rates as it predicts 13% inflation and long recession
Base rate raised by 0.5 percentage points to 1.75%, as Bank says inflation will hit 13% in October
Vladimir Putin’s invasion of Ukraine has left Britain on course for a recession lasting more than a year and inflation above 13%, the Bank of England has warned as it raised interest rates for a sixth successive time.
Threadneedle Street said it had no choice but to increase borrowing costs by 0.5 percentage points to 1.75%, blaming Russia for cost of living pressures not seen in more than four decades and a 5% drop in living standards straddling this year and next – the biggest since records began in the 1960s.
Andrew Bailey, the Bank’s governor, said “there is an economic cost to the war”, as he predicted the economy was on course for a period of stagflation – a recession combined with a soaring cost of living.
While accepting the biggest increase in interest rates in 27 years would cause pain, particularly to the least well-off, Bailey said the Bank needed to take action to prevent spiralling price rises from becoming ingrained.
“If we don’t act now to prevent inflation becoming persistent, the consequences later will be worse, and will require larger increases in interest rates,” he said. “Returning inflation to its 2% target remains our absolute priority, no ifs, no buts.”
Hinting that further interest rate increases were likely, the Bank’s nine-strong monetary policy committee (MPC) said it would be “particularly alert to indications of more persistent price pressures, and will if necessary act forcefully in response”.
Posted: 13 hours ago
The MPC expects an increase in the energy price cap to about £3,500 in October to result in inflation rising to 13.3% – its highest since 1980 – and to trigger a five-quarter recession that will last from the final three months of this year until the end of 2023.
With the average mortgage payment expected to rise by about £50 a month as a result of higher interest rates and the average household fuel bill reaching £300 a month, the next prime minister will come under pressure to help households cope with rising costs.
Both candidates in the ill-tempered race to succeed Boris Johnson said the Bank’s gloomy forecasts, which landed with him away on his summer holiday, vindicated their economic plans.
Liz Truss said the prospect of recession underlined the need for her “bold economic plan” to enact immediate tax cuts, while Rishi Sunak argued Truss’s plans would result in higher borrowing, higher interest rates and more persistent inflation.
In its latest update on the state of the economy, the Bank said it expected the looming recession to last as long as the one during the global financial crisis of 2008-09, but to be less severe. Even so, the MPC forecasts unemployment will rise sharply from under 4% to more than 6% by early 2025.
Inflation is expected to remain above 10% into next spring but then to fall sharply to below its 2% target by the middle of 2024.
In addition to raising interest, the MPC also signalled that it would tighten policy accelerating the unwinding the money-creation process known as quantitative easing.
Between 2009 and the start of the pandemic in 2020 the Bank bought £895bn of government and corporate bonds in an attempt to support the economy but is now planning to sell bonds at a rate of £10bn a quarter over the next year.
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