Berliner Boersenzeitung - Inflation-fighting Bank of England eyes 12th rate hike

The institution's monetary policy committee will announce the outcome of its latest regular gathering at 1100 GMT, with UK consumer price inflation the highest in the G7.

It is expected to lift the key rate by 25 basis points to 4.5 percent, matching the previous March hike and taking borrowing costs to a level last seen in 2008 during the early stages of the global financial crisis.

The European Central Bank and the US Federal Reserve had last week both implemented quarter-point increases, in a slowdown in the pace of their monetary tightening.

Policymakers across the world are battling rampant inflation fuelled largely by runaway energy bills in the wake of key producer Russia's ongoing invasion of Ukraine.

- Cost-of-living crisis -

In Britain -- the only Group of 7 nation where inflation topped 10 percent in March -- it has sparked a cost-of-living crisis, with increasing numbers of people pushed into poverty.

Runaway inflation has also prompted widespread strikes in Britain as many workers protest over salaries that have sunk in value.

However, Prime Minister Rishi Sunak's Conservative government and the BoE have urged employers to show restraint, warning big pay hikes would jeopardise efforts to tame inflation and lead to more sharp rises in consumer prices.

BoE chief economist Huw Pill recently said that Britons need "to accept that they're worse off and stop trying to maintain their real spending power by bidding up prices via higher wages".

The remarks were not well received by critics, with Trades Union Congress boss Paul Nowak arguing workers did not "need lectures" over pay but instead wanted "their fair share".

Some analysts, including those at Goldman Sachs, believe the BoE might need to ramp up rates to five percent to bring inflation under control -- even if it risks damaging economic activity and further hurting consumers with higher loan costs.

- Wiggle room? -

Capital Economics analyst Paul Dales stated there was a "decent chance" that UK interest rates could peak at 4.5 percent this month.

UK inflation will likely slow in April after sharp increases in electricity and gas bills during the same month one year ago, he noted.

The government has forecast inflation will decelerate sharply to 2.9 percent by the end of the year.

Dales added that the BoE's accompanying policy statement could give it "wiggle room" to either pause the tightening cycle in June or raise rates further, depending on data.

The Bank of England has hiked rates 11 times since late 2021 in an unsuccessful bid to keep inflation close to its two percent target.

The British central bank will also publish its latest quarterly outlook for economic growth and inflation on Thursday.

That will include the impact of recent turmoil in the commercial banking sector, which saw the collapse of several US regional lenders and the UBS rescue of troubled giant Credit Suisse.

Official data due Friday, however, is expected to show the UK economy grew during the first quarter of this year after narrowly avoiding recession in the last three months of 2022.

BoE governor Andrew Bailey insisted last month that regulatory reforms introduced after the 2008 financial meltdown mean that the world does not now face a "systemic" banking crisis.

(F.Schuster--BBZ)