The top concern all over the world is now inflation
The Bank of England (BoE) had no option but to hike rates, as is de rigueur now in central bank circles following the aggressive 75 basis points (bps) hike by the Federal Reserve (Fed) yesterday and a shock 50 bps hike by the Swiss National Bank this morning. The last decade was a race to the bottom in currency wars globally with lacklustre inflation dynamics, but the mood music has now changed from last year, with inflation being the top concern for all the world over. The bluntest tool in this fight is to lean on the rate part of monetary policy and if you can massage your currency higher to ease imported inflation, then all well and good. This only works to a point as we now see – hiking rates with slowing economic growth is not going to lead to that expected currency strength, and indeed we see sterling relatively weak following the hike.
With no press conference or any new forecasts associated with this 25 bps hike, the committee was split, with three members wanting 50 bps while six went for 25 bps. Their commitment to act “forcefully if necessary” seems a little laughable – the necessity is already here with inflation expected to peak at 11%, but the BoE knows that growth is slowing and fast so it cannot act as forcefully as it may proclaim.
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