It’s NOT quite 2008 again, Andrew Bailey insists as the Bank of England hikes key rates to 4.25% despite global financial sector turmoil
The Bank of England yesterday became the latest central bank to defy fears of global financial sector turmoil by going ahead with a quarter-point rate hike.
And banking governor Andrew Bailey dismissed parallels to the previous crisis that devastated the global economy 15 years ago, saying: “I don’t think it’s a repeat of 2008 at all.”
The increase to 4.25 percent was the 11th straight rate increase as the Bank grapples with cost-of-living pressures caused by rising prices.
Busy: 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 came a day after inflation rates unexpectedly rose to 10.4 percent in February.
There had been speculation that interest rate setters in the UK and around the world would think twice about further increases following the demise of Credit Suisse and a string of smaller US lenders.
It is the industry’s biggest crisis since the 2008 crash and there are fears that further rate hikes could put further pressure on banks.
Yet the Bank of England, like the US Federal Reserve a day earlier and the European Central Bank a week ago, have all decided to press ahead.
The Swiss National Bank — in the melting pot of the crisis after overseeing UBS’ emergency takeover of Credit Suisse — also raised rates by half a percentage point yesterday.
In London, the bank’s interest-setting monetary policy committee (MPC) said it had been briefed by financial stability officials in Threadneedle Street about the turmoil and that “the UK banking system remains resilient.”
The MPC said it would continue to monitor “any effects on credit conditions faced by households and businesses and therefore the impact on the macroeconomic and inflation outlook.”
It said it would make a “full assessment” of the impact of the turmoil at the time of its next meeting in May – when the Bank will issue its next quarterly monetary policy report.
Bailey acknowledged that “people are concerned about the cost of living” and “might also be concerned about what they’ve heard about banks.”
But he rejected any comparison with 2008, saying: “I am convinced that the banks in this country are in a much stronger position.”
The Bank also released improved economic forecasts, which predict a return to growth in the second quarter of this year after a first quarter of contraction.
That would not mean an immediate recession, which is defined as two consecutive quarters of contraction in the economy. In last month’s monetary policy report, the Bank forecast a recession over five quarters. The latest update did not provide figures for the last two quarters of 2023.
On Wednesday, the Fed’s quarter-point increase — in its fight to bring inflation back to 6 percent — came with the suggestion that it might be willing to interrupt its own aggressive series of hikes.
Last week, the European Central Bank (ECB) pushed through with an interest rate hike of half a point.
Christine Lagarde, head of the ECB, stressed that there is no “trade-off” between the interest rate hikes needed to reduce inflation – still at 8.5 percent in the eurozone – and financial stability.
Some economists think the Bank of England may have already reached the end of its rate hikes, but Bailey said: ‘We don’t know if it will be the peak.
What I can tell you is that we’ve seen signs that inflation is really peaking now. But it’s way too high. We need to see it start to gradually ease and get back on track.”