almost 2 years ago • 3 mins
The Bank of England (BoE) raised interest rates again on Thursday, but even the simplest of psychics could have told you that would happen.
What does this mean?
The BoE hiked interest rates from 0.50% to 0.75% on Thursday, making it the first major central bank to bring rates back to their pre-pandemic levels. That’s its third consecutive hike since December, and its fastest pace of hikes since 1997. But no one’s surprised: the BoE was already the first big central bank to raise rates after the pandemic hit, and it was widely expected to do it again. After all, the BoE’s under pressure to cool the country’s three-decade high inflation, especially since it's set to soar higher from the effects of war in Europe.
Why should I care?
For markets: Careful, there.
The BoE now expects inflation to hit 8% by the end of next quarter, up nearly 1% from its forecast in February. The central bank even reckons inflation could hit double-digits later this year, when the energy price cap – a limit on how much suppliers can charge customers – is likely to rise again. The BoE looks like it’ll be careful with its future hikes, mind you: it's trying to fight inflation without hurting the economy too much, since consumer confidence is already falling and folks' wallets are squeezed more than the central bank expected. That might explain why some economists now only expect two more hikes this year, rather than the five that were priced into the markets before the news.
Zooming out: China’s switching things up.
China’s not on the rate hike bandwagon, that’s for sure: its government said this week it needed to boost the economy this quarter, after recent government crackdowns and Covid lockdowns left the country reeling. Analysts, then, think that might mean the government will actually cut a key interest rate in the next few days.
Keep reading for our next story...
Data out on Thursday showed that car sales in Europe slumped again last month, leaving carmakers searching for any possible route that will get them cruising again.
What does this mean?
Europe’s carmakers have been lacking the parts they need to keep production on track for months now, so they’ve been stuck making – and in turn, selling – fewer cars. Just look at some of the region’s giants: Renault, Volkswagen, and Stellantis each sold 4%, 12%, and 18% fewer cars last month than the same time last year. In fact, there were 6.7% fewer new cars registered in Europe this February than last, worse than January’s 6% fall and the weakest showing for February on record. Carmakers, then, are likely to fall back on the one trick that’s been keeping them going: focusing on manufacturing their higher-end, more profitable cars to make up for the shortfall.
Why should I care?
Zooming in: It’s only down from here…
Thing is, last month’s data only accounts for the very start of Russia’s war in Ukraine, and there’s likely a lot more fallout to come. After all, Ukraine’s a major supplier of key car parts, and analysts reckon shutdowns in the country could cut Europe’s production numbers by up to 700,000 in the first half of the year alone. Add in that German giants Volkswagen, BMW, and Mercedes have already cut production at their European plants, and you’ll see why Bloomberg Intelligence thinks the region’s car sales could flatline this year, having previously predicted 5% growth.
The bigger picture: Europe, meet Japan.
European carmakers aren’t alone: Toyota said earlier this week that the chip shortage is forcing it to make more production cuts this month. That comes just days after it lowered its domestic production targets for next quarter, in an effort to ease the strain on its suppliers. And since lockdowns have also forced some of its Chinese plants to shut down, there could be more cuts to come.
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