Recession fear over rate hikes

CENTRAL banks could tip the global economy into a ‘devastating’ recession if they hike interest rates too high, the world Bank has warned.

As the Bank of England, the European Central Bank and the US Federal Reserve push ahead with unprecedented rate rises, the washington DC-based organisation sounded a note of caution.

A day earlier, the international Monetary Fund (IMF) – the world Bank’s sister organisation – urged central banks to be ‘stubborn’ in the fight against inflation. The mixed messages, showing just how divided experts are in their approach to tackling red-hot inflation, may have left policy-makers scratching their heads.

The Fed has embarked on an aggressive fight against inflation, hiking rates by an abnormally large 0.75 percentage points at both of its most recent monetary policy meetings to a range between 2.25pc and 2.5pc.

The higher rates are in the US, the more the dollar rises. This then makes inflation worse in other countries who must pay more to import anything sold in dollars.

The Bank of England is due to hike rates again next week and is widely expected to announce its own unprecedented 0.75 percentage point lift – taking rates to 2.5pc.