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In Money Matters

Bank of England will raise the key rate, but the inflation will unlikely to be tamed immediately

21st February 2022 Matthew Weller

Bank of England will raise the key rate, but the inflation will unlikely to be tamed immediately Pin It

The foreign exchange markets have been in the grip of rising inflation in recent weeks. Where are central banks going to raise the rent the fastest?

The Bank of England leads the way. On March 17, the British central bank is expected to raise the key rate for the third time in a few months. It must be very strange, if the board wants to see it off.

At the previous meeting on February 3, half of the Bank of England board members already voted to increase the rent by half a percent instead of a quarter of a percent.

Inflation expectations in the country have been set up normally since then. The British central bank now takes into account that inflation in April reached a peak of 7.25 percent.

Bank of England chairman Andrew Bailey recently made a call to employees to please do not ask for too much salary increase. That call shows how afraid he is that the temporary training of inflation will take on a more structural character as a result of a wage-price spiral.

For the time being, the style of British inflation is mainly due to temporary shortages in supply chains. They have drawn up the prices of all kinds of things: from natural gas and industrial materials, to CO2 itself for the brewery and food industry.

Some of these texts are a direct result of Brexit. Many foreign workers have returned to their own countries in view of stricter working arrangements in the UK. And while there has been talk of tariff and quota-free treatment with the European Union, New border controls sometimes make this a challenging and time-consuming process.

It is becoming increasingly clear recently that the opposite side of trade between the European Union and the United Kingdom has created a major dent.

Both imports and exports caused major damage in early 2021. This has been partially restored (see chart below, blue lines), but in December of last year the UK imported some 20 billion pounds of goods from the EU and exported some 15 billion pounds to the European Union, resulting in a trade short of some 5 billion pounds on a monthly basis.

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