Rate headache for bank as war in Ukraine puts future rate hikes in jeopardy

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Interest rate headache for Bank of England as invasion of Ukraine puts future rate hikes in doubt










The invasion of Ukraine will cause a fresh headache for the Bank of England as it mulls over whether to hike interest rates next month.

Economists say the conflict is likely to drive up the cost of living even further as it threatens oil, gas and grain exports.

But while rising inflation will give central banks more reason to raise rates, they will shy away from it amid fears that a rise could worsen an economic downturn.

Pressure: The Bank of England has already raised interest rates twice in the past three months

The Bank of England has hiked interest rates twice in the past three months.

With inflation set to rise to over 7 percent this spring from its current 30-year high of 5.5 percent, traders expected the bank to hike rates again at the next policymakers’ meeting in March.

Although the war in Ukraine will deepen the cost-of-living crisis around the world, it could also slow economic growth – a problem made worse by higher interest rates.

Capital Economics said food prices are also likely to rise as Russia and Ukraine account for more than a quarter of wheat and 80 percent of sunflower seed exports worldwide.

Bestinvest’s Jason Hollands said there was a “real possibility” that inflation would exceed the bank’s maximum forecast of 7.25 percent.

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