Dissatisfaction Guaranteed

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What's going on?

The Bank of England (BoE) raised interest rates again on Thursday, but some of its friskier committee members mightve been disappointed with the size of the package.

What does this mean?

The BoE already hiked the key interest rate in December, but youd be hard-pressed to find an economist that didnt expect the central bank to do it again not after inflation in the country hit a 30-year high the same month. They were right: the central bank raised the key interest rate from 0.25% to 0.5% in the first back-to-back hike in 18 years, and wouldve upped it to 0.75% if just one more committee member had been on board (tweet this). The BoE also said its planning to offload some of the $1.2 trillion worth of bonds its accumulated in the last decade, in view of reducing the total by more than $250 billion by 2025.

Why should I care?

The bigger picture: Its a vicious circle.
Theres a good reason for the BoEs urgency: the UK government announced on Thursday that itll be raising its energy price cap which limits how much suppliers can charge customers by more than 50%. That will light a serious fire under inflation, so much so that the central bank is now expecting inflation to peak at 7.25% in April. And while it said its planning more rate hikes to slow things down, thats an imperfect solution: higher rates will make it more expensive to pay back debt, which will squeeze households’ finances even more.

Zooming out: Europe plays coy.
This continues to be more than just a British problem, with data out this week showing that European inflation hit another record high last month. The European Central Bank has ruled out any rate hikes of its own this year, but traders are less and less convinced that itll be able to stick to those guns: theyre now pricing in a hike as soon as July.

Originally posted as part of the Finimize daily email.

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