Stocks, oil and businesses react to the Ukraine-Russia war: live news

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Stocks, oil and businesses react to the Ukraine-Russia war: live news

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Credit…Henry Nicholls / Reuters

The Bank of England raised interest rates to the prepandemic level on Thursday in an effort to fight the rapidly accelerating inflation that was exacerbated by the war in Ukraine.

The central bank raised rates by 25 basis points to 0.75 percent, the third consecutive hike in a policy meeting, as it raised its inflation forecast. But the decision was not unanimous as policymakers assessed the gloomier outlook for the British economy.

Although the war has led to higher energy and commodity prices, pushing up the expected peak in inflation, it is also expected to cut economic growth in Europe, including Britain. This creates a challenge for the bank. Its goal is to bring inflation back to its 2 percent target, but policymakers will want to avoid cooling the economy too aggressively and misleading the post-pandemic recovery.

“The outlook for the global economy has deteriorated significantly since the Russian invasion of Ukraine in late February and the resulting substantial increase in energy and commodity prices,” the bank said in a statement.

On Wednesday, the Federal Reserve raised U.S. interest rates for the first time since 2018 and forecast six more hikes this year as inflation rises. Last week, the European Central Bank got close to raising its benchmark interest rate when it proposed an end date for its bond purchase program.

“The economy has been subject to a series of very large shocks recently,” the Bank of England said Thursday. “The Russian invasion of Ukraine is another such shock.” If energy and commodity prices remain high, it will weigh on the UK economy. “This is something that monetary policy cannot prevent,” the bank added.

The bank’s mandate is to aim for a 2% inflation rate, and another hike in interest rates was needed to prevent higher wage and consumer price trends from consolidating, he said.

The annual inflation rate rose to 5.5% in January and is expected to rise to around 8% in the second quarter, the bank said. The bank had expected inflation to peak in April when energy bills rise, but now it says inflation could be even higher by the end of the year, perhaps several percentage points higher.

Even as inflation moves away from target, the future pace of interest rate hikes is less clear. The central bank reiterated that “a further modest tightening” of monetary policy might be appropriate, but added a warning Thursday, saying there are risks to this judgment depending on the inflation path.

Before the war, there were already concerns in Britain about a cost of living crisis. Inflation was outpacing wage growth, energy bills would rise, and tax hikes are expected next month. The government is under increasing pressure to reconsider its plans to raise taxes when it announces a budget update next week.

The Russian invasion of Ukraine “is likely to accentuate both the peak of inflation and the negative impact” on economic growth “by intensifying the squeeze on household incomes,” the central bank said Thursday.

In February, the bank predicted that its measure of household net income after tax and inflation would fall by 2% this year compared to last year. The impact on earnings “is likely to be materially greater now” than this due to higher commodity prices, the bank said Thursday.

Eight of the nine members voted for the rate hike. Jon Cunliffe, Deputy Governor for Financial Stability, voted to keep interest rates at 0.5 percent due to “very significant negative impacts” on households from higher commodity prices. According to the minutes of this week’s policy meeting, a broader assessment is needed on this balance between increased inflationary pressures and a worsening outlook for household balance sheets.

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