The Bank of England (BoE) raised its key rate on Thursday to 3.5%, a high since October 2008, to contain inflation which is close to 11% and despite a British economy which is on the way to a recession. .
However, it slowed the pace of monetary tightening, just like the American central bank (Fed) the day before.
The BoE’s Monetary Policy Committee (MPC) voted for a key rate hike of 0.5 percentage points, the British institution said in a press release, down from the level of 0.75 points the previous month. even if further increases could be necessary, according to her.
On Wednesday, the US Federal Reserve (Fed) also fell from an increase of 0.75 point to 0.5 point, and the European Central Bank (ECB) could do the same later Thursday.
Even though economic activity is undoubtedly weakening, there are signs that it is more resilient than expected and it is unclear how fast the labor market will ease, the BoE notes in the minutes of his meeting.
It now forecasts a 0.1% contraction in UK GDP in the fourth quarter, slightly less marked than the 0.3% contraction that was expected in November. But it does not amend its forecast of a long recession which would have already started.
And inflation, if it fell to 10.7% in November, remains a peak in nearly 40 years, fueling a crisis in the cost of living in the country where strikes are multiplying.
The latest MPC projections suggest one-year inflation peaked in October, BoE Governor Andrew Bailey says in a letter to the finance minister, a mandatory exercise when inflation moves further away one percentage point from the 2% target.
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The rise in prices is, however, increasingly fueled by local factors. The labor market, in particular, is very stretched, he adds, predicting a lasting decline in inflation only from spring 2023.
A sign of the difficulty for the MPC to manage the economy while fighting inflation, of its nine members, two defended maintaining rates at their November level and another a more marked increase of 0.75 percentage points.
The BoE has also started selling the long-term bonds it had bought at the end of September and in October, after the soaring state borrowing rate in the wake of ultra-costly budget announcements from the Liz government. Truss.
As of December 13, about 40% of the government bonds purchased in these operations have been sold, details the BoE.