Bank of England Has Trapped Itself in a Tightening Corner
With inflation at a 30-year high, the U.K. central bank should raise interest rates for a third time.
Bank of England with the statue of the Duke of Wellington in the City of London.
Photographer: Mike Kemp/In PicturesWith Russia's invasion of Ukraine depressing the economic outlook and sparking a surge in market volatility, now would be the perfect time for the Bank of England to hit the pause button after having raised interest rates twice in recent months to combat rampant inflation. It doesn't have that luxury after being asleep at the wheel for much of last year as consumer price pressures built. That puts it in the awkward spot this week of being compelled to persist with the hike-at-every-meeting course it embarked upon in December.
A majority of the Monetary Policy Committee, and possibly every member, will likely vote on Thursday for a 25 basis-point increase that will take the bank rate to 0.75%, back to its level prior to the pandemic, geopolitical events notwithstanding. It’s what the central bank does in the coming months, with inflation already running at its fastest pace in 30 years and set to keep accelerating, that is more challenging.