Translated by: MOS Education Team – NoQ G
Bank of England President Andrew Bailey believes inflationary pressures may be more persistent than previously forecast, citing soaring energy costs and signs of cost pressures affecting wage levels.
Bailey said the Bank of England will do its best to ease household pressures. Earlier, the Office for National Statistics said the U.K. consumer price index (CPI) rose 5.4% in December from a year earlier, a higher-than-expected increase and the biggest rise since March 1992, after rising 5.1% in November.
Investors believe that the Bank of England will raise the bank interest rate to 0.5% on February 3, and the likelihood will be more than 80%. In December 2021, the Bank of England had raised interest rate from 0.1% to 0.25%, becoming the first major central bank to raise borrowing costs since the outbreak of the epidemic.
Meanwhile, minutes of the European Central Bank (ECB) meeting showed a serious divergence in policymakers’ views on the inflation outlook. The ECB cut its stimulus to the economy in the meeting on December 16, but extended its bond-buying program until at least the end of 2022 on the grounds that inflation could fall back below the 2% target by the end of this year, a decision that was not unanimously approved. The minutes show that policymakers are deeply divided on the outlook, with 25 policymakers arguing that inflation is at risk of exceeding expectations
The minutes of the ECB meeting said “there were warnings that inflation ‘above target over a longer period of time’ could not be ruled out.” “For 2023 and 2024, inflation in the baseline forecast is already relatively close to 2%, and given the upside risks to the forecast, inflation can easily remain above 2%.
5 of the 25 Governing Council members opposed the December policy move, a rare number of dissenters for a Governing Council that usually strives for consensus and does not always conduct formal voting. The prevailing view in the ECB is that inflation rate will decrease on its own, even without taking policy action.
Currently, inflation rate has reached a record 5%, more than twice the ECB’s target. For the past 10 years, the ECB’s forecasts have been inconsistent with the level of actual inflation development, and policymakers have questioned the bank’s forecasting model in several recent meetings.
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