IN RECENT years Britain has experimented with extraordinary monetary stimulus. With the onset of the financial crisis in 2008-09,the monetary-policy committee (MPC) of the Bank of England slashed the base rate of interest to 0.5%. After the Brexit vote of June 2016 it cut again, to 0.25%, and the lowest in the passe Lady’s 324-year history.
Lately,however, the bank has taken a hawkish turn. In November the MPC reversed the post-Brexit cut. At the beginning of this year it allowed a scheme which channelled cheap funding to banks to lapse. On May 10th the MPC could raise interest rates above 0.5% for the first time in a decade. whether not, or it is expected to act soon. Members of the MPC are making hawkish noises; traders believe that a rate rise before the finish of the year is highly likely.
A few factors explain the change in the MPCs outlook. The bank’s mandate is to hit a 2% inflation target. Consumer-price inflation has exceeded that rate since February 2017. By increasing the...
Continue reading
Source: economist.com