The UK central bank hikes rates by 50bps, but the pound plunges. Evil is different ..
Inflation is the greatest evil, and central banks try to fight it with the usual tools for them, such as interest, but the result is likely to be counterproductive. The Bank of England raised the main rate by 50 percentage points, taking it to 1.75% during its meeting in August 2022, the sixth consecutive rate hike, and pushing borrowing costs to the highest level since 2009, in line with market forecasts. This is the largest rate hike since 1995. The nearly doubling of wholesale gas prices since May affects retail energy prices, exacerbating the decline in UK households' real incomes and further increasing UK inflation from CPI in the short term, the bank said. According to the BOE's new projections, CPI inflation is expected to rise to 13.3% in October and remain at very high levels for much of 2023, before falling to the 2% target two years later. On the growth side, the UK is expected to enter a recession in the fourth quarter and last for five quarters.
So, although it is clear that inflation is due to the explosion in the costs of gas, therefore imported, the BoE still decides to increase rates, thus lying even more difficult for British families and businesses. A choice consistent with the world of people who have no problem because they enjoy the privilege of salaries that protect them from the world. It will be the families of the lower classes, or the middle classes, who will have to pay for these choices.
Among other things, the markets do not believe in the effectiveness of the measure: the British pound has fallen to a minimum against the US dollar, a sign that, in any case, there are no particular hopes for growth in the short term.
the central banks seem to be unable to do anything other than make an already serious situation worse. This is the result when inflation becomes monomania and the real economy is forgotten.
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The article The British central bank hikes rates by 50bps, but the pound plunges. Evil is different .. it comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-banca-centrale-inglese-innalza-i-tassi-di-50-pb-ma-la-sterlina-precipita-il-male-e-diverso/ on Thu, 04 Aug 2022 17:11:26 +0000.