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Bank of England to Resume Interest Rate Hikes Amid Rising Inflation and Energy Risks
Confirmed
In Short: Bank of England governor Andrew Bailey warned of inflationary pressures and potential energy price increases, signaling the central bank's intention to resume interest rate hikes in September.
Bank of England governor Andrew Bailey warned of inflationary pressures and potential energy price increases, signaling the central bank's intention to resume interest rate hikes in September. Speaking to MPs, Bailey noted that inflation risks were 'to the upside' and energy prices could rise further due to the ongoing conflict, which has triggered a surge in oil prices and stoked inflation fears globally.
The Bank of England's Monetary Policy Committee will decide on whether to hike interest rates next week, with Bailey warning that higher short-term bond yields, determined by traders, suggest there could be three interest rate hikes over the next 12 months. However, he insisted there was 'no secret plan' and that the committee would be led by data.
Meanwhile, the TUC has called for a bank surcharge to help low and middle earners with their energy bills, estimating it would raise £9bn over four years. The proposal for a social tariff would be popular with Labour MPs, while the Liberal Democrats and the Greens have also called for a windfall tax on banks. UK Finance, which represents well-known banks and lenders, has suggested that heavier levies would undermine the government's ambition to deliver 'growth in every postcode' and would damage international competitiveness.
Bailey also highlighted concerns about high levels of youth unemployment, which stand at around 16 per cent, and noted that a slowdown in the jobs market could soften price pressures in the economy. The conflict in Iran, which has blockaded the Strait of Hormuz and choked off oil supply from major producers, has led to sharp rises in energy costs.
Background
The European Central Bank (ECB) is the central component of the Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important central banks, heading a system with a combined balance sheet of close to €7 trillion.
What's confirmed
- Bank of England governor Andrew Bailey warned of inflationary pressures and potential energy price increases, signaling the central bank's intention to resume interest rate hikes in September. Speaking to MPs, Bailey noted that inflation risks were 'to the upside' and energy prices could rise further due to the ongoing conflict, which has triggered a surge in oil prices and stoked inflation fears globally.
- The Bank of England's Monetary Policy Committee will decide on whether to hike interest rates next week, with Bailey warning that higher short-term bond yields, determined by traders, suggest there could be three interest rate hikes over the next 12 months. However, he insisted there was 'no secret plan' and that the committee would be led by data.
- Meanwhile, the TUC has called for a bank surcharge to help low and middle earners with their energy bills, estimating it would raise £9bn over four years. The proposal for a social tariff would be popular with Labour MPs, while the Liberal Democrats and the Greens have also called for a windfall tax on banks. UK Finance, which represents well-known banks and lenders, has suggested that heavier levies would undermine the government's ambition to deliver 'growth in every postcode' and would damage international competitiveness.
- Bailey also highlighted concerns about high levels of youth unemployment, which stand at around 16 per cent, and noted that a slowdown in the jobs market could soften price pressures in the economy. The conflict in Iran, which has blockaded the Strait of Hormuz and choked off oil supply from major producers, has led to sharp rises in energy costs.
What's still developing
- Bank share prices have risen faster here than in New York," he said. The TUC's demands for tax-raising measures don't stop with the banks, with Nowak arguing the UK has "a tax system that's good at taxing income but not good at capturing wealth". Nowak suggests a windfall tax on social media companies and for the government to equalise rates of Capital Gains Tax with income tax. The economist and former minister Lord O'Neill - who has advised Burnham – said recently that wealth taxes were "the last thing that should be happening if we want to see more growth". Nowak responded: "With respect, I think he is wrong.
- The organisation argues that UK banks face a heavier tax burden than those in the US, for example.
- “The conflict is still going on and it is also causing a high level of energy prices and quite a bit of volatility in energy prices,” Bailey said, adding that turbulence was “feeding through into financial markets”.
- He also said that traders had priced in a premium on top of expectations in order to cover the risks of prolonged trade disruption across the Strait of Hormuz, which could lead to higher prices for households.