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Central banks to hike rates in 'show of strength' against rampant inflation


World’s leading central banks look set for aggressive round of interest rate hikes in ‘show of strength’ as they step up fight against inflation

The world’s leading central banks look set for an aggressive round of interest rate hikes in a ‘show of strength’ as they step up the fight against inflation. 

In the latest sign that the pandemic era of cheap money is over, the Bank of England and the Federal Reserve are widely expected to raise borrowing costs once again this week. 

Having raised rates for the first time in three years in March, by 0.25 percentage points, the Fed could increase them by a further 0.5 percentage points on Wednesday. 

Under pressure: With a cost of living crisis buffeting households, inflation in the UK is running at a 30-year high of 7 per cent

Under pressure: With a cost of living crisis buffeting households, inflation in the UK is running at a 30-year high of 7 per cent

And some believe the Bank of England could follow suit with a similarly large rate increase on Thursday – though a smaller rise from 0.75 per cent to 1 per cent is seen as more likely. 

That would still be the highest level of interest rates in the UK since early 2009. They were just 0.1 per cent last December. While rate hikes of 0.5 percentage points are rare, they are not unprecedented. 

The Reserve Bank of New Zealand and Bank of Canada implemented such hikes last month and look set to do so again in the coming weeks. 

Analysts said central bankers may wish to portray such coordinated aggressive moves as a ‘show of strength’ as they step up their battle against inflation. 

With a cost of living crisis buffeting households, inflation in the UK is running at a 30-year high of 7 per cent while it is at a 40-year high of 8.5 per cent in the US. 

Simon French, an economist at Panmure Gordon, said: ‘A number of central banks have dispensed with a gradual approach.’

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