Will the Bank of England raise interest rates again? We’ll know for sure next Thursday, when we get the Monetary Policy Committee’s next announcement on the base rate, but today’s decision from the Federal Reserve to hike rates again makes it more likely that the Bank will follow suit.
The Fed has announced another interest rate hike: a quarter of a percentage point, taking the rate to 5 – 5.25 per cent. This tenth consecutive hike in the United States has taken its key interest rate to the highest level since 2007 – approximately where rates sat before the financial crisis hit.
This has caused plenty of controversy across the pond, as fears grow that further hikes risk tipping the US economy into recession. The inflation rate in the States sat at 5 per cent on the year in March, but core inflation (which excludes fuel and food) slightly increased in March, up to 5.6 per cent. So the Fed has raised rates once again, in an effort to get price hikes under control.
The UK is suffering a similar problem – but on a much larger scale. Core inflation is also refusing to budge, sticking at 6.2 per cent on the year in March, the same rate as in February. But in Britain, CPI is double that in the States, with the rate of inflation coming in at 10.1 per cent on the year in March – above what the consensus expected the rate to be by this point in the year.
Both the Fed and the Bank find themselves in the same tricky situation: having failed to act on price rises early on, both central banks have been playing catch-up.