What’s Going On Here?The Bank of England (BoE) raised interest rates for the fourth time in a row on Thursday, and the central bank has no plans to change its tune just yet. What Does This Mean?Economists knew the BoE was bound to act when UK inflation hit a 30-year high in March, even after three rate hikes since December. And they were right: the central bank raised rates for a fourth-straight time by 0.25% to 1% – the highest they’ve been since 2009, and the fastest pace of hikes in 25 years. The BoE also said it was thinking about starting to sell some of the $1 trillion-plus worth of bonds it’s accumulated since the financial crisis. That would push up borrowing costs even more, which should help dampen the country’s spending and, in turn, inflation. Why Should I Care?The bigger picture: Not even the BoE is optimistic.
The central bank said it’s now expecting inflation to top 10% by the end of the year, in part because the government is planning to lift the cap on energy suppliers’ prices by another 40%. And since wages aren’t exactly likely to climb in kind, the BoE said it thinks “real” household disposable incomes – that is, adjusting for inflation – will plunge nearly 2% this year. That’s a problem for you and the economy: household spending is so crucial that the BoE now reckons the UK economy could fall into a recession before the year’s out.
Zooming out: Turkey puts its fingers in its ears.
Turkish inflation is on another level entirely: data out on Thursday showed that consumer prices rose by 70% last month compared to April 2021 (tweet this). It isn’t surprising given that the government cut interest rates last year, even though economists almost unilaterally agree that lower rates cause higher inflation. And with the Turkish government ignoring all the evidence that proves those eggheads right, it probably won’t change tact anytime soon. | 