September 24, 2023

Yesterday, the Bank of England became the latest central bank to challenge fears of a turmoil in the global financial sector by raising interest rates by a quarter of a point.

And bank governor Andrew Bailey dismissed parallels with the previous crisis that devastated the global economy 15 years ago, saying: “I don’t think it’s a repeat of 2008 at all.”

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The hike to 4.25% was the 11th consecutive rate increase as the Bank grapples with price-driven cost-of-living losses.

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Pressure: Bank of England Governor Andrew Bailey (pictured) dismissed parallels between the current chaos and the crisis that devastated the global economy 15 years ago

It comes a day after figures showing inflation rose unexpectedly to 10.4% in February.

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There have been rumors that rate-setters in the UK and around the world might think twice about further hikes after the shutdown of Credit Suisse, as well as a number of smaller lenders in the US.

This is the biggest crisis for the sector since the 2008 crash, and there are fears that further rate hikes could put additional strain on banks.

However, the Bank of England, like the US Federal Reserve a day earlier and the European Central Bank a week earlier, all decided to move forward.

The Swiss National Bank, caught in the crucible of the crisis after overseeing an emergency takeover of Credit Suisse by UBS, also raised rates by half a percentage point yesterday.

In London, the Bank’s Monetary Policy Committee (MPC) said it had been briefed by financial stability officials on Threadneedle Street about the unrest and that “the UK banking system remains sound”.

The MPC said it would “continue to monitor any impact on credit conditions faced by households and businesses, and therefore the impact on the macroeconomic and inflation outlook.”

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He said he would conduct a “full assessment” of the impact of the turmoil during his next meeting in May, when the Bank releases its next quarterly monetary policy report.

Bailey acknowledged that “People are concerned about the cost of living” and “may also be concerned about what they’ve heard about banks.”

But dismissing any comparisons to 2008, he said: “I’m sure the banks in this country are in a much stronger position.”

The bank also released improved economic forecasts, pointing to a return to growth in the second quarter of this year after contracting in the first quarter.

More lenders will fail

Rising interest rates will cause more banks to fail, according to a leading city investor.

Sonia Laud, chief investment officer at Legal & General, said central banks were faced with a “difficult balancing act” to curb inflation or undermine the economy.

“In 70 years, and in every walking cycle we’ve seen over that period, we’ve never seen a walking cycle that didn’t lead to a recession or a financial crisis or both,” she told the BBC. -si.

“The question has always been: why should this time be different? “If you hit the brakes, there is a chance that something will break, and always the weakest links are thrown to the surface first.”

This would mean no immediate recession, which is defined as the contraction of the economy for two consecutive quarters. In the monetary policy report for the last month, the Bank predicted a five-quarter decline. The last update did not include data for the last two quarters of 2023.

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On Wednesday, the Fed’s quarter-point hike – as it struggles to bring inflation down to 6% – was accompanied by speculation that it may be ready to pause its aggressive streak of hikes.

Last week, the European Central Bank (ECB) raised interest rates by half a point.

ECB chief Christine Lagarde insisted there could be no “compromise” between the rate hike needed to bring down inflation (still at 8.5% in the eurozone) and financial stability.

Some economists believe the Bank of England may have already come to the end of its rate hikes, but Bailey said: “We don’t know if there will be a peak.”

“What I can tell you is that we are now seeing signs that inflation has indeed reached its peak. But it’s too high. We need to see how it starts to gradually decrease and return to the target.