Bank of England hikes interest rate for tenth time in row as global economies race to combat sky-high inflation

Bank of England hikes interest rate for tenth time in row: The Bank of England raised interest rates by half a percentage point Thursday as it sought to tame double-digit inflation that is fueling a cost-of-living crisis, public-sector strikes and fears of recession.

The bank’s monetary policy committee voted 7-2 to push its key rate to 4%, approving the 10th consecutive rate increase since a post-pandemic surge in the world economy and Russia’s war in Ukraine drove inflation to 40-year highs.

Economists suggest this may be the last big rate increase for Britain's central bank, which has approved 10 consecutive hikes since a post-pandemic surge in the world economy and Russia's war in Ukraine drove inflation to 40-year highs.

The US Federal Reserve has already begun tapering its response, boosting its key rate by just a quarter-point on Wednesday. The European Central Bank, meanwhile, is expected to go big again, with a half-point hike on Thursday.

Optimism grew that rate increases may begin to tail off after UK inflation eased for a second straight month to 10.5 per cent in December, down from a peak of 11.1 per cent in October. That's still far higher than in the US and the 20-country eurozone, where inflation slowed to 6.5 per cent in December and 8.5 per cent in January, respectively.

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With the cost of food and services rising and wage increases outstripping forecasts, most economists expect the Bank of England's Monetary Policy Committee, or MPC, to send the message that it is serious about fighting inflation. But it is likely to be a close decision, with some economists suggesting that the bank will opt for a quarter-point increase in its key rate as energy prices fall and concerns about sluggish economic growth take centre stage.

Inflation soared after Russia's invasion of Ukraine fuelled sharp increases in food and energy prices, leading to the UK's biggest drop in living standards since the 1950s. The government is trying to prevent higher wages from causing a second round of domestically driven inflation that could be more difficult to tame.

Rising prices also are choking off economic growth and squeezing public finances as the government spends billions to help consumers and businesses hit by high energy costs this winter. The International Monetary Fund this week said that the UK was on track to be the only major economy to shrink this year, even as the outlook for the rest of the world improves.

The IMF said that the country's gross domestic product was likely to contract by 0.6 per cent in 2023, compared with a previous forecast of 0.3 per cent growth. The Bank of England will release its own updated economic forecasts Thursday, with economists expecting a more optimistic picture than the IMF's as energy prices stabilise.

Wholesale natural gas prices in Britain are down 75 per cent from their peak in late August, which will translate into lower costs for businesses and consumers in coming months. 

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