Upon arrival, Scholz condemned the Iranian strikes on Israel
The Bank of England is focusing on inflation, announcing an 11th consecutive interest rate increase despite concerns about the economic fallout from troubles in the global financial system.
Britain’s central bank boosted its key rate by a quarter-percentage point to 4.25% on Thursday, a day after the US Federal Reserve approved a similar move to tame inflation that is crimping household budgets and slowing economic growth.
The decision came after the UK statistics agency surprised policymakers on Wednesday by reporting that inflation accelerated to 10.4% in February, driven by the cost of food, clothing and dining out.
Before the figures were released, many analysts had expected the Bank of England to keep rates on hold because of concern about turmoil in the global financial system following the collapse of two U.S. banks and the ensuing troubles at Switzerland's Credit Suisse, which forced a hastily arranged takeover by rival UBS.
The bank “continue to monitor closely indications of persistent inflationary pressures," it said in announcing its decision. “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required."
Still, Thursday’s move was the smallest rate hike since May of last year as the Bank of England forecasts a steep drop in inflation later this year. Inflation is expected to slow to 2.9% by the end of the year as energy costs fall and big price increases recorded last year drop out of the calculation.
Raising interest rates increases the cost of borrowing, which reduces spending and relieves upward pressure on prices. But it also tends to slow economic growth.
Central bankers worldwide are struggling to balance competing economic demands as they try to rein in inflation, which erodes savings and increases costs for consumers and businesses, without unnecessarily damaging economies weakened by the COVID-19 pandemic, Russia’s war in Ukraine and now banking upheaval.
The U.S. Federal Reserve weighed in with its assessment of the risks Wednesday, raising its key interest rate by a quarter-point as Fed Chair Jerome Powell tried to reassure Americans that it is safe to leave money in their banks.
The Swiss central bank hiked its key rate by half a point Thursday and declared that the government-orchestrated takeover of Credit Suisse by rival Swiss bank UBS “put a halt to the crisis.”
A week ago, the European Central Bank hiked rates by a large half-point, brushing aside the financial market jitters and calling Europe’s banking sector resilient.
Inflation has proved to be more stubborn in Britain than elsewhere, partly because it has been more exposed to the jump in natural gas prices triggered by Russia’s invasion of Ukraine. It's even more affected than mainland Europe, which got through the winter heating season largely without Russian supplies of natural gas and has a lower inflation rate of 8.5% in the 20-country euro area.
The gas crunch took an unexpectedly big toll in February, when the high price of energy needed to heat greenhouses, combined with bad weather in southern Europe and Africa, contributed to an 18% jump in food prices, the biggest increase in 45 years.
The Bank of England and the government have been focused on trying to prevent those cost pressures from becoming embedded in the economy, driving up wages and further fuelling inflation.
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