Boe Prices Up

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Boe Prices Up

BoE Prices Up

The Bank of England is taking measures to tackle the rising inflation and the interest rate may rise by 25 basis points. Monetary Policy Committee of it voted 8-1 in favor of hiking the rate to 0.75 percent. Jon Cunliffe, who voted against it, preferred the rate to remain at 0.5 percent.

It is learned the BoE may not respond to the rising inflation aggressively and could follow the strategies of the US Fed that may hike six times in 2022.

Meanwhile, the BoE has warned to be reassessing the inflation forecasts as the Russian invasion of Ukraine has made the situation worse. The initial forecast was about 7.25 percent for April, but it may increase as the prices of commodities including energy and food have increased due to the Russia-Ukraine conflict.

The BoE added that inflation may increase to about 8 percent in the coming months and probably be more by the end of 2022.

The Russia-Ukraine war may exacerbate further disruptions of the worldwide supply chain and thereafter increase significant uncertainty in the global economic outlook.

Even though the GDP in January 2022 emerged stronger and offered optimism that the British economy is gaining health post-COVID, but the Ukraine crisis has led to lower confidence among consumers due to rising prices of consumer products.

The BoE added MPC will be reviewing the developments including geopolitical events to re-forecast.

Most analysts and economists believe the inflation may not be more than 1.5 percent in 2022 as a rise in interest rate in a short period may impact the country's economy. The borrowers will be impacted and the cost of living may further rise.

However, some argue that the rates may climb higher as the MPC has signaled more hikes could be announced in the coming months and the peak rates may turn up 2 percent in 2023.

It is yet to be seen how the GDP is impacted by the Russia-Ukraine tension and the confidence of consumers is deteriorating gradually leading to slower growth. Inflation may take a peak by the end of 2022.

The BoE has an unenviable task to control inflation without creating a recession with their announcements as the inflation is believed to be close to double-digit this year.

Meanwhile, the Russia-Ukraine war has entered its fourth week and the supply of oil and gas has been disrupted due to various sanctions of Western allies over Russia. Oil and gas imports have been banned from the country and Russian banks have been removed from the international SWIFT payment systems.

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