2023-08-03 14:51:22
The Bank of England has raised the interest rate by a quarter of a point and has left it, after the fourteenth consecutive increase, at 5.25%, the highest figure since the start of the financial crisis in April 2008. The increase marks continuity of the bank’s policy, whose statutory objective is to maintain inflation around 2%. The last figure, in June, was 7.9%, the lowest for a year.
The bank’s governor, Andrew Bailey, dismissed the risk of high inflation in the period of economic recovery at the end of the pandemic, and acknowledged in July that the United Kingdom is having a hard time reducing inflation “much longer than expected.” Inflation is certainly higher than in its reference areas, the European Union and the United States.
Bailey repeatedly points to wage increases – an average of 7.6% in the private sector, in April, compared to the first quarter of last year – as a major cause of resilient inflation. Others point to the use of circumstances by companies that raise their prices. Unemployment is 4%, but the number of inactive people who are not looking for a job continues to exceed that of neighboring countries.
Sunak Bet
The Government, for its part, cushions the inflationary consequences of Brexit. It has now given up changing the CE marking (European conformity) on goods for a British one. And it has again extended the introduction of the new customs control system for imports of food products. Both temporary resignations want to avoid an increase in bureaucratic costs.
Decisions by the central bank’s Monetary Policy Committee are independent of the government, but Prime Minister Rishi Sunak has vowed to halve inflation this year. The promise has been criticized because he has no power to keep it. When he committed to that achievement, on January 4, the latest inflation measure was 10.7%, in November 2022.
Although other bank executives warned about the danger of persistent inflation, the institution led by Bailey believes that mistakes have been made about the evolution of the economy based on inaccurate data. The Federal Reserve governor in the great financial crisis, Ben Berrnanke, has been brought in to lead a review of the current forecasting system.
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