With the US Federal Reserve expected to hike interest rates by 75 basis points later Wednesday, it is time to look at how the UK, America and Europe are tackling surging inflation.
Russia’s invasion of Ukraine caused global shortages and inflation levels unseen for 40 years, which, in turn, largely contributed to the looming recession, economic downturn and reduced consumer spending and confidence.
The Bank of England’s (BoE) Monetary Policy Committee (MPC) will meet Thursday to deliver a quarter-point hike to 1.25%, economists said.
A 6-10 June poll revealed all but one of 56 economists thought the BoE would advance rates by 25 basis points, in what would be its fifth consecutive rise.
Philip Shaw, Investec chief economist, commented: "Indeed since its inception in 1997, the committee has not raised rates by any more than 25bps in a single step.
“But bearing in mind the direction of travel elsewhere we cannot rule this policy option out completely."
US running ahead at a pace
Meanwhile, across the Atlantic Ocean, rates are expected to be escalated at a faster rate than in the UK.
The current American rate is 0.75%, with it increased by 0.5 percentage points – the sharpest rise in 22 years - in May.
This evening’s expected 0.75 percentage point increase, which would be the first since 1994, would be the third in as many months following 40-year high inflation in March.
Ipek Ozkardeskaya, Swissquote senior analyst, said: “Investors know that the Fed will want to get more aggressive on the back of a difficult-to-ease inflation and yesterday’s producer data came as another confirmation that inflation has more to inflate in the coming months.
“At this point, the decision of a 75bp is almost made, the Fed should only confirm the market verdict.”
The sentiment was widespread, with ING Economics anticipating much the same, it said on Tuesday.
“Markets are fully pricing in a 75bp rate hike… and we acknowledge this is looking to be an increasingly likely scenario.
“At this stage, we cannot exclude the implied probability of a 100bp move to start rising, too.”
ECB dithering
Now, back to Europe – what is the European Central Bank (ECB) up to?
On Wednesday afternoon, it held an emergency ad-hoc meeting to “discuss current market conditions,” which experts put simply as fragmentation.
ECB members were not able to agree on any proper action regarding recent bond spread widening, ING Economics said, but tasked the committees to accelerate the work on an anti-fragmentation tool.
Back onto interest rates, the ECB chose to keep its three different interest rates unchanged in June but said it intends to increase rates by 25 basis points in July as inflation shows no sign of easing.