The Bank of England (BoE) announces a further increase in official interest rates by 0.5%, the biggest increase since 1995, to 1.75%, the highest level since 2008. The central bank of the United Kingdom United Kingdom The UK warns that the inflation crisis is getting worse and reacts forcefully by making mortgages and loans more expensive to stop fueling price rises.
ECB raises interest rates by 0.5 points, double what was announced, in the face of the price crisis
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The BoE follows the trajectory of the American Federal Reserve (Fed) and continues to raise this rate, a benchmark for the price that banks put on credit, and paves the way for the European Central Bank (ECB), which proceeded to the first increase on July 21, also 0.5%but from 0%.
The institution which directs the monetary policy of the United Kingdom deplores the sharp rise in the prices of “wholesale” energy, and in particular of gas and electricity, and justifies the aggressive increase in official interest rates in this that “it affects retail energy prices, exacerbating the fall in real household income and the rise in inflation even more.
His forecast is that the CPI (consumer price index) will accelerate to 13% in the fourth quarter of 2022, “and remain at very high levels for much of 2023”, he observes.
UK fourth quarter recession
“GDP growth in the UK is slowing. The latest rise in the price of gas has led to a further significant deterioration in the outlook for activity and for the rest of Europe”, he continues, and does not hide the expectation that “the United Kingdom will enter a recession from of the fourth quarter of this year.” A situation in which the United States already finds itself, and which threatens the European Union (EU).
The problem for central banks is that their response to the energy and inflation crisis involves tightening funding conditions, after years of cheap credit, which is another drag on economic activity.
The contradiction is that cooling credit to stop fueling inflation is precisely what the Fed, the BoE or the ECB are looking for, even if the risk of causing a recession increases and the rise in rates has no effect. on gas or oil, which depend on geopolitical issues. .
That same Wednesday, the Organization of the Petroleum Exporting Countries (OPEC) and other countries such as Russia decided to increase oil production by 100,000 barrels per day from September. The decision initially slightly inflated the price of a barrel of Brent oil as it was considered “insufficient”, although futures subsequently fell back below $100. But they remain at unusually high levels. On the other hand, uncertainties about a total cut off of Russian gas consumed by the EU, while shipments have already been drastically reduced in recent weeks.
Meanwhile, the Bank of Spain is already signaling tightening funding conditions in our country (see chart above), with data prior to the official ECB rate hike. “The average cost of new credit granted to households and businesses has increased slightly in recent months, in line with the start of the normalization of monetary policy. [del BCE]”, he declares.
Difficulties in obtaining loans increase according to SMEs
Perception of SMEs on the availability of bank loans and the percentage of them who have applied for them
Source: Bank of Spain
In the same vein, “the criteria for granting loans to families and non-financial businesses tightened moderately in the first half”, and the forecasts “point to a contraction in the supply of credit to SMEs in the coming months”. For its part, the demand for credit is weak, especially from SMEs”. “On the other hand, applications for loans for the purchase of a home would have continued to grow,” according to the agency, despite the fact that mortgage loans are also increasing.