The ECB and the Bank of England increase their rates by 50 bp

The European Central Bank (ECB) and the Bank of England (BoE) increased their interest rates by 50 basis points (bp).

In the case of the ECB, this is the fourth consecutive hike; however, it was of lower intensity compared to the 75 bp of their past meetings.

The entity anticipated more increases and exposed plans to drain cash from the financial system, as part of its fight against inflation.

The ECB left the rate at 2.5%, moving away from more than a decade of ultra-loose monetary policy.

The central bank has warned of even higher borrowing costs to persuade investors it is serious about fighting inflation, which according to its new forecasts could stay above its 2% target through 2025.

“We believe that interest rates still have to rise significantly and at a steady pace,” ECB President Christine Lagarde told a news conference, adding that more 50bp hikes are expected for a “considerable” period.

Lagarde said that inflation risks remain biased to the upside, citing the possibility of higher-than-expected wage growth and government support measures that ended up boosting demand in the region.

The financial entity forecasts that inflation will be above 2% until 2025 and expects growth in the bloc of 0.5% by 2023.

BoE, the same steps

The BoE’s pitch was similar to the ECB’s: further rate hikes and an economic slowdown. The central bank raised its rates to 3.5%, its highest level in 14 years.

“While there is no doubt that economic activity is weakening, there are signs that it is more resilient than expected and it is unclear how quickly the labor market will relax,” the BoE said in a statement.

The institution expects the British economy to contract 0.1% in the fourth quarter.

Both the BoE and the government believe that the British economy has entered a recession that will last into the next year.