Europe’s big two central banks each raised their benchmark by 0.5 percentage points - smaller increases than before, but with a warning of more to come.
| The Bank of England and the European Central Bank have joined the US Federal Reserve in jacking up their benchmark interest rate by 0.5 percentage points, even as signs emerge that inflation may be starting to cool.
The markets are pricing in a peak in the Bank of England benchmark of 4.25 per cent in the first half of next year, while expectations are that the ECB will go to at least 3 per cent.But in scaling back the size of the increase this month, both central banks may be implicitly acknowledging that inflation has started to temper and their economies are headed for a recession.In Britain, inflation eased to 10.7 per cent in November, from what now looks to have been a peak of 11.
“If the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary … to return inflation to the 2 per cent target sustainably in the medium term.” She said the eurozone was probably already in a Ukraine-driven recession, with contractions this quarter and next, but the slump would be “relatively short-lived and shallow”.The eurozone economy, which is dominated by Germany, France and Italy, would stagger towards GDP growth of 0.5 per cent next year and 1.9 per cent in 2024.
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