cloudyn.png
Monday October 3rd, 2022 8:37PM

Bank of England hikes rates but avoids more aggressive step

By The Associated Press
Related Articles
  Contact Editor

LONDON (AP) — Britain’s central bank raised its key interest rate Thursday by another half-percentage point to the highest level in 14 years, but it avoided more aggressive steps to tame inflation taken by the U.S. Federal Reserve and other banks around the world.

It is the Bank of England’s seventh straight move to increase borrowing costs as rising food and energy prices fuel a cost-of-living crisis that is considered the worst in a generation. Despite facing a slumping currency, tight labor market and inflation near its highest level in four decades, officials held off on acting more boldly as they predicted a second consecutive drop in economic output this quarter, an informal definition of recession.

The bank matched its half-point increase last month — the biggest in 27 years — to bring its benchmark rate to 2.25%. The decision was delayed for a week as the United Kingdom mourned Queen Elizabeth II and comes after new Prime Minister Liz Truss’ government unveiled a massive relief package aimed at helping consumers and businesses cope with skyrocketing energy bills.

The new measures have eased uncertainty over energy costs and are “likely to limit significantly further increases” in consumer prices, the bank's policymakers said. They expected inflation to peak at 11% in October, lower than previously forecast.

“Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back,” the monetary policy committee said.

The bank signaled it is prepared to respond more forcefully at its November meeting if needed. Its decision comes during a busy week for central bank action marked by much more aggressive moves to bring down soaring consumer prices.

The U.S. Federal Reserve hiked rates Wednesday by three-quarters of a point for the third consecutive time and forecast that more large increases were ahead. Also Thursday, the Swiss central bank enacted its biggest-ever hike to its key interest rate.

Three of the British bank’s nine committee members wanted a similar three-quarter-point raise but were outvoted by five who preferred a half-point and one who voted for a quarter-point.

The decision “suggests the Bank of England is concerned about the UK’s economic deteriorating outlook amid the looming threat of recession,” said Victoria Scholar, head of investment at interactive investor. “The timid increase will do little to stem the slide in sterling but may avoid inadvertently inducing unnecessary pain for the economy which is already grappling with slowing demand and deteriorating confidence.”

Surging inflation is a worry for central banks because it saps economic growth by eroding people's purchasing power. Raising interest rates — the traditional tool to combat inflation — reduces demand and therefore prices by making it more expensive to borrow money for big purchases like cars and homes.

Inflation in the United Kingdom is running at 9.9%, close to its highest level since 1982 and five times higher than the Bank of England's 2% target. The British pound is at its weakest against the dollar in 37 years, contributing to imported inflation.

To ease the crunch, Truss’ government announced it would cap energy bills for households and businesses that have soared as Russia's war in Ukraine drives up the price of natural gas needed for heating.

The Treasury is expected to publish a “mini-budget” Friday with more economic stimulus measures, and the bank said it won’t be able to assess how they will affect inflation until its next meeting in November.

The Bank of England expects gross domestic product to fall by 0.1% in the third quarter, below its August projection of 0.4% growth. That would be a second quarterly decline after official estimates showed output fell by 0.1% in the previous three-month period.

The weakness partly reflects a smaller-than-expected rebound after an extra June holiday to celebrate the queen's 70 years on the throne and the impact of another public holiday Monday for her funeral, officials said.

The bank avoided pressure to go bigger even as other banks around the world take aggressive action against inflation fueled by the global economy's recovery from the COVID-19 pandemic and then the war in Ukraine.

This month, Sweden’s central bank raised its key interest rate by a full percentage point, while the European Central Bank delivered its largest-ever rate increase with a three-quarter point hike for the 19 countries that use the euro currency.

But British policymakers signaled they will “respond forcefully, as necessary” if there are signs that inflationary pressure is more persistent than expected, “including from stronger demand.”

The bank said it's also moving ahead with plans to trim its bond holdings built up under a stimulus program, selling off 80 billion pounds ($90 billion) worth of assets over the next year to bring its portfolio down to 758 billion pounds.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP Business, AP Business - Economy, AP Business - Financial Markets, AP Business - Industries, AP Business - Financial Services, AP Business - Utilities
© Copyright 2022 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Bank of England hikes rates but avoids more aggressive step
Britain’s central bank has raised its key interest rate by another half-percentage point, avoiding more aggressive steps to tame inflation that the U.S. Federal Reserve and other banks have taken
7:33AM ( 7 minutes ago )
Trump docs probe: Court lifts hold on Mar-a-Lago records
A federal appeals court has lifted a judge’s hold on the Justice Department’s ability to use classified records seized from former President Donald Trump’s Florida estate in its ongoing criminal investigation
7:29AM ( 11 minutes ago )
Puerto Rico struggles to reach areas cut off by Fiona
Hurricane Fiona left hundreds of people stranded across Puerto Rico after smashing roads and bridges, with authorities still struggling to reach people four days after the storm smacked the U.S. territory, causing historic flooding
7:28AM ( 12 minutes ago )
Associated Press (AP)
No let-up in hostilities in Ukraine despite prisoner swap
Officials say Russian missile strikes in the southern city of Zaporizhzha left one person dead and five others wounded as Ukrainian shelling in Russian-controlled Donetsk city killed at least five people
6:48AM ( 53 minutes ago )
Ukraine’s Mariupol defenders, Putin ally in prisoner swap
Ukraine has completed a high-profile prisoner swap with Russia, the culmination of months of efforts to free many of the Ukrainian fighters who defended a steel plant in the port of Mariupol during a months-long Russian siege
5:37AM ( 2 hours ago )
White House hosts local officials, touts impact of policies
The White House is reaching out to local governments
5:34AM ( 2 hours ago )
AP National News
In Ukraine's retaken battlefields, soldiers recover bodies
Only now are Ukrainian soldiers able to retrieve the bodies of dead soldiers from a region near the Russian border that was the scene of fierce fighting for months over the summer
3:02AM ( 4 hours ago )
Drowning island nations: 'This is how a Pacific atoll dies'
Heads of state from Tuvalu and the Marshall Islands have launched a “Rising Nations Initiative” as they race toward solutions to a rising ocean level that will make their countries all but uninhabitable in the coming decades
2:24AM ( 5 hours ago )
AP: Probe finds evidence of bank boss' romance with top aide
Investigators say they found evidence a former Trump official who heads Latin America’s biggest development bank carried on a romantic relationship with his chief of staff
1:21AM ( 6 hours ago )
Top General short headlines
EU talks up Russia sanctions but consensus may prove elusive
European Union officials say the world's biggest trading bloc is determined to impose more sanctions on Russia
6:44AM ( 57 minutes ago )
UK government formally confirms lifting of fracking ban
Britain’s government has formally confirmed it is lifting a ban on fracking in England, arguing that the move will help boost the country’s energy security following Russia’s invasion of Ukraine
6:14AM ( 1 hour ago )
Swiss central bank enacts biggest-ever hike to key rate
Switzerland’s central bank has carried out the biggest hike ever to its key interest rate
6:07AM ( 1 hour ago )
AP Business
Biden: Russia's Ukraine abuses 'make your blood run cold'
President Joe Biden has declared that Russia has “shamelessly violated the core tenets” of the United Nations charter with its “brutal, needless war” in Ukraine
10:09PM ( 9 hours ago )
Leaders of S. Korea, Japan agree to strive to improve ties
The governments of South Korea and Japan say their leaders have agreed to accelerate efforts to mend ties frayed over Japan’s colonial rule of the Korean Peninsula
9:35PM ( 10 hours ago )
North Korea denies sending arms to Russia amid Ukraine war
North Korea says it hasn’t exported any weapons supplies to Russia during the war in Ukraine, and has no plans to do so in the future
7:35PM ( 12 hours ago )
AP Business - Economy
Steel plant defenders, Putin ally exchanged in prisoner swap
Ukraine has completed a high-profile prisoner swap that culminated months of efforts to free many of the Ukrainian fighters who defended a steel plant in the port of Mariupol during a months-long Russian siege
8:55PM ( 10 hours ago )
Russian separatists release 10, including 2 US veterans
Relatives say two U.S. military veterans who were captured while fighting alongside Ukrainian forces are among 10 people released by Russian-backed separatists in a prisoner exchange
6:10PM ( 13 hours ago )
How steep Fed rate hikes affect your finances
Mortgage rates have jumped, home sales have slumped and credit cards and auto loans have gotten pricier
2:08PM ( 17 hours ago )
AP Business - Financial Markets
Puerto Ricans desperate for water after Fiona's rampage
More than a half million people in Puerto Rico remain without water service three days after after Hurricane Fiona slammed the U.S. territory
11:05PM ( 8 hours ago )
With Ukraine nuke plant in peril, UN tries to broker safety
The head of the U.N. nuclear watchdog agency says he'll meet with Ukraine’s and Russia’s foreign ministers in a bid to establish a safety and security zone around a nuclear plant in southeastern Ukraine that is Europe’s largest
9:35PM ( 10 hours ago )
Gates Foundation prods UN, honors inspiration as Goalkeepers
Bill Gates and Melinda French Gates combined characteristic optimism with sobering questions about persistent gender inequality and hunger at an event the Gateses’ foundation convened on the sidelines of the U.N. General Assembly
7:44PM ( 11 hours ago )
AP Business - Industries
Iran targeted by apparent cyberattack amid protests
The website of Iran’s Central Bank was briefly taken down as the Anonymous hacking group claimed to have targeted websites of several state agencies
8:34AM ( 23 hours ago )
EXPLAINER: How steep Fed rate hikes affect your finances
Mortgage rates have jumped, home sales have slumped and credit cards and auto loans have gotten pricier
6:35AM ( 1 day ago )
High inflation in sight, Fed to signal more rate hikes ahead
The U.S. Federal Reserve is expected to raise its key short-term rate by a substantial three-quarters of a point for the third consecutive time
6:04AM ( 1 day ago )
AP Business - Financial Services
Fiona strengthens into Category 4 storm, heads to Bermuda
Hurricane Fiona has strengthened into a Category 4 storm  after lashing the Turks and Caicos Islands after devastating Puerto Rico
8:35AM ( 23 hours ago )
Putin sets partial military call-up, won’t ‘bluff’ on nukes
Russian President Vladimir Putin has ordered a partial mobilization of reservists in Russia, effective immediately
8:29AM ( 23 hours ago )
Germany nationalizes country's biggest gas importer Uniper
The German government says it's agreed to nationalize the country’s biggest natural gas importer, Uniper, expanding state intervention in the industry to prevent an energy shortage resulting from Russia’s war in Ukraine
7:23AM ( 1 day ago )
AP Business - Utilities
Trump docs probe: Court lifts hold on Mar-a-Lago records
A federal appeals court has lifted a judge’s hold on the Justice Department’s ability to use classified records seized from former President Donald Trump’s Florida estate in its ongoing criminal investigation
7:29AM ( 12 minutes ago )
Puerto Rico struggles to reach areas cut off by Fiona
Hurricane Fiona left hundreds of people stranded across Puerto Rico after smashing roads and bridges, with authorities still struggling to reach people four days after the storm smacked the U.S. territory, causing historic flooding
7:28AM ( 14 minutes ago )
UK government lifts fracking ban despite opposition
Britain’s government has confirmed it is lifting a ban on fracking in England, arguing that the move will help boost the country’s energy security following Russia’s invasion of Ukraine
7:26AM ( 15 minutes ago )
Walmart, Target begin holiday early to ease inflation sting
Walmart and Target plan to begin offering deals and price matching offers earlier this year to keep up with Americans pressed by soaring inflation and looking for ways to take the sting out of holiday shopping
7:25AM ( 17 minutes ago )
Turkish central bank lowers interest rate to 12%
Turkey’s central bank has delivered another interest rate cut and lowered the benchmark rate by 1 percentage point to 12%
7:21AM ( 20 minutes ago )