High inflation in the long run is a reason for the intervention of the Bank of England

High inflation in the long run is a reason for the intervention of the Bank of England

Photo: ANP

UK inflation is expected to rise sharply next year. The relatively high rate level will remain temporarily, according to the BoE, but in the longer term a “modest tightening” of monetary policy may be necessary.

This comes after the Bank of England’s new interest rate decision. At the moment, interest rates have not yet been raised and other support measures remain the same. But there are concerns. According to a statement, the decision was not entirely unanimous. One executive was so concerned about rising inflation that he would prefer to cut monetary support as quickly as possible.

UK inflation rose to 2.5% in June, above the long-term target of 2%. And that’s not all. It is likely to peak at around 4 per cent next year. One contributing factor is that inflation has risen sharply recently due to the sharp rise in oil prices. Prices of raw materials and semi-finished products such as building materials have also risen as a result of temporary production shortages, and those higher prices can also be passed on to customers.

High inflation can hamper the recovery of the economy, which is why central bankers are paying close attention. However, financial markets in general did not expect monetary policy adjustment. So the interest rate decision was not surprising.

ING economists estimate that the Bank of England will raise interest rates somewhat in early 2023, and possibly a little sooner. Experts expect the central bank to begin phasing out its bond-buying program later that year, as it appears now.

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