Today’s move brings Eurozone monetary policy more into line with that of the Bank of England and the US Federal Reserve, which have each raised interest rates multiple times this year. The re-emergence of double-digit inflation will be a difficult pill to swallow for households – enduring the worst cost-of-living crisis in years – government ministers and the Bank of England alike. It shows that price rises have yet to peak, despite an energy price guarantee limiting gas and electricity bills this winter. The scale of the ECB’s latest rise is on a par with the last three rate hikes imposed by the Federal Reserve on US borrowing costs.
The United States Federal Reserve has further attempted to rein in soaring levels of inflation by raising its target benchmark interest rate by 0.75 percentage points, a history-making fourth increase of this size in a row, Andrew Michael writes. Today’s news follows less than 24 hours from the US Federal Reserve’s decision to hike interest rates – also by three-quarters of a percentage point – their fourth rise of this magnitude in the past five months (see story below). Earlier this month, the Fed further attempted to rein in soaring levels of inflation by raising its target benchmark interest rate by 0.75 percentage points, a history-making fourth increase of that size in a row. Inflation in the United States slowed to 7.7% in the year to October, down from 8.2% recorded a month earlier, taking the figure to its lowest annual level since the start of this year, Andrew Michael writes. Mr Fitzner added that increases to a range of food items also pushed up the inflation figure, although this was partially offset by a decline in motor fuels including a fall in the cost of petrol.
In contrast, the lowest rates were recorded by Luxembourg (5.8%), Spain (5.9%), Cyprus and Malta (both 6.8%). With the dial only moving down in small increments, commentators say US inflation has remained resolutely sticky, suggesting the Fed has more to do to bring prices under control. Deposits held in UK banks are protected by the government-backed Financial Services Compensation Scheme. On a monthly basis, CPIH climbed by 1.0% in February 2023, compared with a rise of 0.7% in February 2022.
The Bank’s Monetary Policy Committee (MPC) raised the Bank Rate by 0.5 percentage points to 4%, its highest level in 15 years. Official data released in January showed that consumer prices rose by 10.5% in the UK in 12 months cloffice ideas to December 2022. Official data released yesterday showed that UK consumer prices rose by 10.4% over the year to February 2023, an unexpected upwards rebound in the inflation print after three months of falling prices.
Today’s announcement means that Prime Minister Rishi Sunak’s aim of halving inflation before the end of 2023 has been achieved. The European Central Bank (ECB), in line with the Fed and the Bank of England, has also left its three key interest rates on hold. Today’s Consumer Prices Index (CPI), from the Office for National Statistics (ONS), fell more abruptly than economists’ predictions of 4.3%.
The service sector saw an 0.1% fall in August after growing 0.3% in July while construction grew by 0.4% on the back of a 1.9% increase in new building projects. Infrastructure (5.3% growth), private industrial (4.3%) and private housing new work (1.7%) were the main contributors to the positive construction sector number. “It is our duty to help the Bank of England in their mission to return inflation to target [of 2%] by acting responsibly with the nation’s finances. That requires some tough but necessary decisions on tax and spending to help balance the books.
Inflation in the United States slowed to 7.1% in the year to November, down from 7.7% recorded a month earlier, taking the latest figure to its lowest annual rate since December 2021, Andrew Michael writes. Over the past 12 months, the Bank has raised its influential Bank Rate eight times to its current level of 3% in a bid to stave off rising prices. Against https://traderoom.info/ the backdrop of inflationary pressures across the single currency bloc, the ECB said it also intends to raise the cost of borrowing by another 50 basis points at its next monetary policy meeting in March. Consumer prices rose by 0.4% month-on-month to February this year, according to official figures from the US Bureau of Labor Statistics published today.
Sterling climbed 0.5% in trading against the dollar earlier today – taking the value of the pound to a 15-month high of $1.305 – as investors increased their bets on the US Federal Reserve cutting borrowing rates early next year. The pound has continued its recent upwards run and stock markets worldwide have also edged higher after a sharper than expected fall in US inflation (see story below) prompted a dollar sell-off, Andrew Michael writes. The average inflation figure for the EU as a whole stood in marked contrast to the rates recorded at individual country level.
It comes a day after the Bank of England expanded its measures by introducing short-term funding for banks to help ease the squeeze on pension funds. A 1.6% decline in manufacturing output is seen as the prime cause for August’s decline, with firms trimming production because of higher energy prices and a slump in consumer demand. The Bank, which has a mandate from the government to keep inflation to 2%, repeatedly warned this summer that rising prices could hit 13% this winter and remain at elevated levels throughout 2023, although it has since revised this forecast down to 11%. The move follows an increase of the same magnitude in September, and marks the third rate rise in as many months for the 19-member single currency bloc. The deposit rate, which was negative until August, was raised from 0% to 0.75% and has now doubled to 1.5% following today’s increase. This is the same target as the Bank of England, which reveals its latest interest rate decision tomorrow (Thursday).
The Bureau noted that housing was “by far the largest contributor” to rising prices, more than offsetting a fall in the price of energy over the past month. Price rises were expected to be much less painful by this point of the year as the steep rises of early 2022 fell out of annual comparisons, but this reading puts inflation back to its level from January. The ONS reported that the CPI including owner occupiers’ housing costs (CPIH) rose by 8.9% in the year to March 2023, down from 9.2% recorded a month earlier. The ONS said the largest downward contributions to today’s figure came from motor fuel, housing and household services, particularly liquid fuels. But these were partially offset by rises in the cost of food – up by a whopping 19.2% – recreation and culture.
Prices are expected to have increased by 3.4% in November according to the Fed’s preferred inflation gauge – the PCE print. The US labor market remained buoyant in December, adding more jobs than expected and throwing recent Fed projections into disarray. I’ve been involved in personal finance and property journalism for the past 20 years, editing websites and writing for national newspapers. My objective has always been to offer no-nonsense information to readers that either saves or earns them cash. The latest CPI figure far exceeds the 2% official target set by the Bank of England (BoE).
The EBSS will see £400 taken off every households’ electricity bills, spread over the six months from October 2022 to March 2023. The ONS announced in August that the £400 discount on domestic energy bills under the Energy Bills Support Scheme (EBSS) would be treated as increasing household income, rather than reducing expenditure. UK inflation accelerated to a 41-year high with a reading of 11.1% in the year to October 2022, according to the Office for National Statistics (ONS), writes Andrew Michael.
As interest rates at home and abroad level off and inflation risks recede, the next decision for monetary policymakers is how long they will maintain borrowing costs at present rates and what scope, if any, there is to start cutting them. Along with other major central banks worldwide, such as the Bank of England and the European Central Bank (ECB), the Fed is required to maintain inflation at 2% over the medium to long-term. To achieve this, the main tool that central banks have at their disposal is the ability to raise and lower borrowing costs.
Separate figures released today by the Office For National Statistics, showed that the UK’s economy as measured by its GDP (Gross Domestic Product) shrank in April by 0.3%, due to services, production and construction sectors all retracting. It marks the second consecutive month that the economy has shrunk, having retracted by 0.1% in March, and is fuelling fears of a recession. The latest increase follows a half-percentage point hike in interest rates announced last month. The last time the Bank Rate exceeded 1% was in 2009 when Gordon Brown was Prime Minister and the world economy was emerging from the global financial crisis. On a monthly basis, the Consumer Prices Index (CPI) increased by 0.8% in June 2022, compared with a rise of 0.5% in June 2021.
