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Essentials of Monetary Policy

Central Banks in Europe. Interest Rate Hikes Announced in the United Kingdom and Norway to Counter Inflation

December 16, 2021
Hendrix Vachon
Principal Economist

Several European central banks met today before the start of the holidays. To counter inflation, the BoE finally decided to begin raising its key interest rate. In November, it expected inflation to peak at around 5% by April 2022 and signalled an interest rate hike within the next few months. We anticipated an announcement in this regard for February, but recent data appears to have convinced the BoE that it couldn’t wait any longer, despite uncertainty over the Omicron variant. Inflation has already exceeded 5%, and the BoE now believes that price growth could hit 6% by the spring. Employment has also improved more quickly than anticipated, with an unemployment rate of 4.2%.