The Bank of England increased interest rates on June 16, 2022, in a bid to rein in runaway inflation that is likely to reach double digits, despite concerns about a substantial slowdown in the British economy. The US Federal Reserve increased rates by 75 basis points on June 15, 2022, the highest increase since 1994.
BoE Striving to go All Out?
In addition to high inflation, the BoE is grappling with a weakening economy as soaring prices and increasing tax stifle growth, while the pound fell substantially against the dollar. In 2022, March and April registered an unexpectedly low GDP growth, indicating that a recession is not far away. The benchmark rate in the UK reached its highest level since January 2009 when borrowing rates were reduced as the global financial crisis raged. The BoE raised rates for the fifth time since December when it became the first major central bank to tighten monetary policy in the aftermath of the COVID-19 pandemic.
Global Turmoil
After the global economy reopened following a fall in the number of COVID-19 cases and Russia's invasion of Ukraine, central banks around the world continue their efforts to curb inflation, which soared to levels not seen in decades. The European Central Bank announced in the second week of June 2022 that borrowing costs would be raised in July and September 2022 for the first time since July 2011. The Swiss National Bank increased its main interest rate for the first time in 15 years on June 16, while Hungary's central bank hiked its one-week deposit rate.
Outlook
The BoE began to tighten monetary policy much earlier than its counterparts, allowing it to proceed with caution. According to BoE, the officials, led by governor Andrew Bailey, continue to focus on ways to reduce inflation, which is at 9% and is expected to reach double digits later in 2022. The government could be forced to raise interest rates in the near future. With inflation already at unprecedented levels owing to the increasing prices of energy and higher taxes, and the pound dropping over 10% against the dollar so far in 2022, the situation is expected to worsen in the months ahead.
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