Feb 2, 2023 - Economy

ECB and Bank of England raise rates again but signal different paths

Bank of England governor Andrew Bailey. Photo: Chris Ratcliffe/Bloomberg via Getty Images

The European Central Bank and Bank of England both continued to raise interest rates at a historically rapid pace on Thursday — but they sent different signals about how much more policymakers will need to restrain the economy to contain inflation.

Driving the news: Both central banks raised rates by a half-percentage point, matching the same pace as the last round of hikes in December.

  • That's in contrast to the Federal Reserve, which continued to downshift its pace of hikes with a quarter-point increase on Wednesday.

What they're saying: In a statement announcing the decision, the ECB said it intended to rates by a similar amount at its next policy meeting in March in the face of underlying inflation pressures — with more hikes likely to come.

  • Data out on Wednesday showed that overall inflation in the European Union continued to slow to 8.5% in the year through January, compared to 9.2% in December. But the gauge that excludes food and energy costs held steady.

The Bank of England sent a more optimistic message — one that hinted the central bank could soon pause its interest rate hikes.

  • Andrew Bailey, the Bank of England's top official, acknowledged that the country had "turned a corner" on inflation during a news conference, though he warned that there were still plenty of risks ahead.
  • The central bank also said that further increases may be warranted if there is evidence of more persistent inflation.

The bottom line: In 2022, most global central banks were very much taking similar steps to contain inflation and all raising interest rates rapidly to do so.

  • Now they face questions about how much higher rates need to go to slow price pressures.
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