Understanding Britain’s High Inflation Rate Despite Interest Rate Hikes by Major Central Banks

Since last year, the US Federal Reserve raised the interest rate 10 times, to range between 5 and 5.25 percent, the highest level since August 2007, which led to a decline in the annual inflation rate in the United States to 5 percent last March, after it reached In mid-2022, it reached its highest level in about 4 decades, exceeding 9 percent, but it is still far from the US central target of 2 percent.

As for the European Central Bank, it raised the interest rate 7 times since last year, with the aim of controlling inflation to reach the level of 3.75 percent, so that inflation in the countries of the euro zone slowed sharply from double-digit readings late last year, as data showed by the European Union Statistics Office. “Eurostat”, that inflation reached 7 percent last April, but it is also still far from the European Central’s target of 2 percent.

In its latest statement, the ECB kept its interest rate options open as its fight against inflation continues, but did not mention the need for further increases.

While the Bank of England was one of the first major central banks to move to raise interest rates to control the rise in prices, as it raised interest rates since December 2021 eleven times, the last of which was last March by 25 basis points, to reach 4.25 percent, which is the highest since the global financial crisis in 2008, But until now, the Bank fails to control the pace of inflation, which is still above 10 percent and the highest in Western Europe.

Raising interest in Europe and America is bearing fruit

Clash Knut, President of the Dutch Central Bank and a member of the European Central Bank’s Governing Council, said in statements last Sunday: “The interest rate hikes implemented by the European Central Bank are beginning to bear fruit, but more will be required to contain inflation,” while the Federal Reserve announced in its recent statement that “activities The economy in the country expanded at a moderate pace during the first quarter of this year.” He also did not indicate the necessity of continuing to raise interest rates, which means that it may open the door to halting the interest rate increase process.

The Bank of England’s measures were less stringent than the US Federal Reserve and the European Central Bank

In turn, Dr. Mamdouh Salameh, a global economist and oil expert residing in Britain, said in his interview with “Sky News Arabia Economy”: “Inflation in the United Kingdom started as high as the United States of America and the European Union, but the measures taken by the Bank of England were much less stringent than the Federal Reserve Bank.” The US or the European Central Bank, because the UK economy was in a much worse condition than the EU or the US.”

Excessively raising interest rates by the Bank of England would have contracted the British economy much more than it would have exacerbated the cost of living and plunged the economy further into recession and made losses, according to Dr. Salama.

Dr Salama explains that the Bank of England may soon stop raising interest rates in the hope that inflation will start to decline of its own volition.

In response to a question about whether oil still affects the inflation rate in Britain despite its low price, Dr. Salama said: “The fact that oil prices have fallen recently and this may help reduce inflation rates in the United Kingdom, but once fears of a banking crisis begin Or a global financial crisis in the decline, oil will compensate for its losses and resume its rise.

Password.. imports

In his interview with “Sky News Arabia Economy”, Ashraf Al-Aidi, CEO of the “Intermarket Strategy” company residing in Britain, attributes Britain’s influence on inflation more than the United States of America and the eurozone countries to the fact that Britain’s dependence on imports has more weight than other countries, but it is in At the same time, it is unlikely that the Bank of England will resort to continuing tightening monetary policy after the US Federal Reserve and the European Central Bank stop tightening monetary policy.

Al-Aidi adds, “The Brexit decision remains a factor that cannot be ignored in playing a role in reducing the growth of the British economy and raising wages and inflation after the departure of thousands of European workers who used to play an important role in reducing wages.”

Symptoms of serious economic distress

For his part, the economist and financial expert, Ali Hammoudi, told “Sky News Arabia Economy”: “It stands Britain It is in the unenviable position of being the only large developed economy to still have an inflation rate in excess of 10 percent, a fact that is symptomatic of the serious economic malaise the country faces, as Britain’s annual consumer price inflation rate fell to 10.1 percent last month from 10.4 percent. “.

The figures highlight the risk that Britain will be exposed to high inflation for longer than other similar economies due to its reliance on natural gas for heating and electricity and the government’s subsidy structure for its citizens to mitigate high price changes, according to Hamoudi.

Great energy shock and labor shortage

Hamoudi explains that the Bank of England is concerned that high inflation may cause a permanent increase in wage demands and business pricing strategies, exacerbated by a post-pandemic workforce decline and trade and job market problems caused by Brexit, pointing out that the kingdom’s inflation rate is The United States rose more and remained higher than anywhere else as the Kingdom experienced the worst of America and Europe, an energy shock as big as the Eurozone and labor shortages like the United States.

High rates of early retirement, long-term illness, and immigration trends have also depleted the pool of workers, which means that the British labor market’s recovery from the pandemic lags behind its counterparts in the international economy. According to the economist and banker Hamoudi, who confirmed that the Bank of England has not yet finished raising interest rates and will not He does this unless he sees a significant drop in inflation figures to at least 6 or 5 percent.

Brexit is the main culprit

The CEO of the “Quorum Center for Strategic Studies” in London, Tariq Al-Rifai, attributed the main reason for the high inflation in Britain compared to the United States of America and European Union countries to the effects of Britain’s exit from the European Union.

In his explanation of the repercussions of this on the British economy, Al-Rifai points out in statements to the “Sky News Arabia Economy” website, “With the global economy emerging from the Corona pandemic crisis, we have seen historically high inflation rates in many countries around the world, including Britain, European countries and America, and we followed the reaction of central banks in Trying to control these high rates by raising interest rates, including the banks of America, Britain and Europe, which were late in this step, which led to rapid rises in inflation in these countries.

Al-Rifai adds: “However, the story of Britain, with the inflation rate remaining high, unlike America and European countries in which the inflation rate has slowed, goes back to economic problems after Britain’s exit from the European Union, including, for example, the problem of delaying drivers’ visas from Europe towards Britain due to differences between them, which delayed arrival Goods to Britain, and Britain is trying to conclude a trade agreement with the European Union, but it did not succeed because this step was postponed by the European Union, and all of this caused the presence of high rates of inflation in Britain.