In a surprise move, the Bank of England has raised the cost of borrowing in the UK. It cited the need to tame inflation which – at 2.7% in November – is above the Bank’s Monetary Policy Committee’s 2% target.
Economists said Britain’s surging housing market was behind the move. Property prices rose much faster than expected last year despite two interest rate increases, in August and November.
The latest rise takes the UK rate to 5.25%. That puts it at the same level as the US Federal Reserve’s benchmark rate while the European Central Bank last lifted rates in December to 3.5%.
ECB President Jean-Claude Trichet did admit expectations for a further interest-rate increase in March are probably justified by euro zone inflation risks.
He also squashed any idea of the bank relinquishing control of interest rates as suggested by French Socialist presidential candidate Ségolène Royal.
Trichet said: “We are responsible for pride stability now, since the first of January for 13 countries, we will see exactly what the last figures are, but we are probably more than 315 million people – with Slovenia – and it is for 315 million people that we have to deliver price stability. The independence of the central bank is in the treaty; a fundamental decision has been taken by the Europeans, it is not to be disputed.”
The ECB jealously guards its independence. Trichet was responding to a statement from Royal that it should no longer be up to him to command the future of the euro zone’s economies, but rather up to leaders designated by the peoples of Europe.