Hike rates

UK first G7 economy to hike rates since pandemic

Britain became the first G7 economy to raise interest rates since the start of the pandemic on Thursday, with the US Federal Reserve also signaling plans for tightening in 2022, but the European Central Bank (ECB) has not only slightly dampened the recovery.
The differing trajectories of major central banks underscore deep uncertainties about how the fast-spreading variant of Omicron will affect the global economy and their diverging views on a surge in inflation landing hard in the US and Great Britain, but less in Europe and even less in Europe. Japan.
As the risk of runaway prices took over for the Fed and the Bank of England (BoE), ECB President Christine Lagarde stressed at a press conference that the pandemic was again depressing spending. in the euro area and threatened growth. “To deal with the current pandemic wave, some countries have introduced stricter containment measures… This could delay the recovery… The pandemic is weighing on consumer and business confidence,” Lagarde said. In this environment, “we must maintain flexibility and optionality” by withdrawing support “step by step”, but without committing to a full exit from pandemic support programs, she added.
The Fed, by contrast, pledged Wednesday to end its pandemic bond purchases by March and outlined an accelerated schedule for interest rate hikes. Fed Chairman Jerome Powell said the United States is heading for strong growth and full employment in 2022 – a distant prospect for most European labor markets – and that the Fed must deal with inflation as the most pressing risk.

BoE policymakers on Thursday raised the benchmark key rate to 0.25% from 0.1%, contradicting economists’ expectations that it would remain unchanged. The BoE said inflation was expected to reach 6% in April, three times the BoE’s target level. “The committee continues to judge that there are bilateral risks around the medium-term inflation outlook, but that a modest tightening of monetary policy over the forecast period will likely be necessary to sustainably achieve the inflation target. ‘2% inflation,’ the UK central bank said.
Daily coronavirus infections in the UK are at their highest level since the early days of the pandemic, forcing Prime Minister Boris Johnson to impose new restrictions this week. An early reading of Britain’s Purchasing Managers’ Index (PMI) for December showed Omicron had already hit UK hospitality and travel businesses – a day after data showed price inflation consumption had reached its highest level in ten years.
The ECB, which has exceeded its inflation target for most of the past decade, kept interest rates unchanged and announced the end of its pandemic emergency asset purchase program in next March.