The ECB’s call to prioritize fighting inflation with further increases in borrowing costs came after it raised interest rates by 0.75 percentage points on Thursday to 1.25%. He warned that inflation in the eurozone was at its highest rate in almost half a century in July, at 9.1%, from 8.9% in July, and was at risk of consolidating. “Inflation remains unacceptably high,” said Peter Kažimír, head of Slovakia’s central bank, who sits on the ECB’s governing body. “The priority now is to vigorously continue the normalization of monetary policy.” Kažimír’s remarks were widely interpreted as a call for further significant increases in borrowing costs despite the possibility of significantly slowing the economic recovery of the 19-member currency bloc. Echoing his words, Dutch central bank president Klaas Knott said the slowdown in growth was a necessary side effect of fighting inflation. “We expect inflation to continue to rise in the coming months, so that means we only have one problem on our plate: inflation,” Knot said, adding: “That will mean we’re going to have to slow down economic growth at least a little bit for to reduce inflation. .” Bank of England officials are expected to repeat August’s 0.5 percentage point hike at their next meeting, raising the bank’s key interest rate to 2.25%. They were due to meet on September 15, but as a mark of respect following the Queen’s death, the meeting has been postponed for a week, so it will take place on September 22. Sanjay Raja, senior economist at Deutsche Bank Research, said the nine-member monetary policy committee was likely to take a middle course after a three-way split, with two members supporting a weaker 0.25 percentage point hike and two supporting a more aggressive percentage of 0.75 point rise. Raja said the government’s pledge to pump £150bn into the economy to reduce household and business energy bills would be seen as inflationary by the Bank, leading to further rate rises next year to a maximum of 4%. Speaking in parliament earlier this week, the Bank’s chief economist, Huw Pill, said: “In answer to the question, will fiscal policies create inflation – we’re here to make sure they don’t create inflation… Our mission is to recover the inflation to target… We have work to do.” Next week will see a flurry of UK economic data, including figures for July GDP growth, which is expected to rebound modestly after falling in June, although it remains on a downward path towards a long recession next year . James Knightley, ING’s chief international economist, said the energy price guarantee was “a double-edged sword for the Bank” that reduced peak inflation from around 16% in January to around 11% in October, but came too late . for city traders to adjust their expectations for a rise of at least 0.5 percentage point. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. “As we saw with the ECB on Thursday, the decision to go ahead with a 0.75 percentage point hike has priced markets as a default at the next meeting,” he said. While the ECB forecast stagnant growth in the winter months, central bank president Christine Lagarde said the current outlook showed the eurozone would avoid recession, although she acknowledged that the loss of access to Russian gas meant a contraction was still possible. . French central bank governor Francois Villeroy de Galhau appeared to downplay the possibility of further big rate hikes, saying: “We have our hands completely free. No one should speculate that this will be the size of the next step. “We didn’t create a new jumbo habit.”
