BoE will struggle to keep calm and carry on hiking

Bank of England Monetary Policy Report News Conference, in London
Governor of the Bank of England Andrew Bailey attends the Monetary Policy Report News Conference at The Bank of England, in London, Britain, November 3, 2022. REUTERS/Toby Melville/Pool

LONDON, March 23 (Reuters Breakingviews) - The 11th time might be the charm. Stung by persistently high inflation, the Bank of England extended its run of interest rate increases to 11, bringing the base rate to 4.25%. While two monetary policy committee members demurred, Governor Andrew Bailey and six other MPC colleagues who voted for the hike believe the fight against inflation takes precedence over weak economic growth and fears over banks’ health.

They are in good company. The European Central Bank and the U.S. Federal Reserve took similar stances. Even the Swiss National Bank lifted its benchmark rate by 50 basis points on Thursday, four days after seeing Credit Suisse (CSGN.S) collapse into UBS’s (UBSG.S) arms. The difficult part comes next. In the UK, rates are already at a 14-year high and investors place a 50% chance on another 25-basis-point increase in May, according to Refinitiv. The BoE expects inflation to drop below its 2% target by June next year. But with GDP set to contract in 2023 and 2024, Bailey doesn’t have that much room to add to his rate-hiking run. (By Francesco Guerrera)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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