Inflation for the British was not a pound of raisins: a jump in the key rate

The Bank of England went for broke

The Bank of England is gearing up for the biggest rate hike since 1989. Namely: by 75 basis points, up to 3% per annum.

“MK” asked the expert: what can change in “good old England”, where, as you know, they don’t really like changes.

London does not take such a step from a good life. The country’s economic growth slowed down, inflation began to seize – in September it amounted to 10.1%.

Since the rate hike on September 22, the Bank of England has been operating in the face of political and financial instability. Caused by the insecurity of financing the plans of the then head of government Liz Truss to cut taxes by 45 billion pounds. This led to the fall of the pound against the dollar and the resignation of the Liz Truss government.

– There are no surprises in the rate increase, – says Nikita Maslennikov, a leading expert of the Center for Political Technologies. – 1.5 weeks before that, leading British and world analysts said that there was simply no other way. London follows the US Federal Reserve, which recently also raised the rate by 75 basis points. They act in unison.

But in the United States, the inflationary situation is better. In September it was 8.2% and is gradually decreasing. In England, on the contrary: it grows, in December-January it can reach 14-15%.

The Central Bank of England, with its more than 300 years of history, is a very responsible organization, now doing what is necessary.

– How will this affect the economy?

– Decline in business activity, interest on loans will increase, this will slow down the appetites of corporate borrowers. In general, this is unhealthy, but inevitable.

– Will the new Prime Minister of Great Britain Rishi Sunak resist or will the fate of Liz Truss await him?

– He has a better chance than Liz Truss. He is a former finance minister and will not repeat the gross mistakes of his predecessor. He speaks less often, but with more content. Although he, with a program of tax increases and plans to cut public spending, will not be easy.

Tightening the tax policy means, in general, tightening the budget policy. When two rigidities collide – the Central Bank and the government – the economy receives a double blow.

We need to look at the situation.

The UK, like the entire Eurozone, will fall into recession in the winter. But the sooner you get in, the sooner you get out. From the point of view of anti-crisis policy, the bank is acting adequately.

– How will the rate increase affect the citizens of the country?

– The new cabinet is likely to start raising taxes. Perhaps his next step will be targeted targeted assistance to the population. Subsidies to pay bills for gas, electricity, and other resources.