UK’s shock interest rate move should serve as ‘a wake-up call’ to Aussies

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The Bank of England has shocked the UK public by imposing another interest rate rise for the 13th meeting in a row, a move that should serve "as a wake-up call" to Aussies.

Speaking on Today, Australian Financial Review (AFR) economics editor John Kehoe said concerns are growing that Australia could be heading in the same direction.

"UK inflation is running at nearly 9 per cent, we are a little bit less than 7 per cent, so we are doing a bit better here but it's still way too high," Kehoe said.

READ MORE: Reserve Bank almost didn't hike interest rates this month, meeting minutes reveal

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"I think the thing we've learned from the UK it that it's stickier (inflation) and hanging around and bleeding into the service sector now.

"The Bank of England raised concerns of unsustainable wage rises, Philip Lowe, our governor, has been raising concerns and saying that we don't want to go down that path because that fuels inflation higher.

"So there are some lessons to be learned here in Australia, but we are looking a lot more like the rest of the world than much different to it.

"I'd expect the reserve bank has probably got a couple more rate rises in them in the coming months."

Fears that the British economy is heading for recession mounted sharply yesterday after the Bank of England raised borrowing costs by more than anticipated, seeking to combat stubbornly high inflation with a hike that will hit borrowers hard, particularly homeowners who have to refinance in the coming months.

READ MORE: Concerns grow over per-capita recession as rate rises continue to bite

On a busy day for central bank action in Europe, the Bank of England said its nine-member Monetary Policy Committee decided to lift its main interest rate by half a percentage point to a fresh 15-year high of 5 per cent.

All but two on the panel backed the half-point increase.

The size of the bank's 13th hike in a row was a surprise, with most economists predicting a smaller quarter-point increase. Some even termed it a panic move given that there had been hopes as recently as last month that the bank would pause its rate-hiking cycle.

Financial markets are pricing in a potential rate peak of 6 per cent, a level not hit since early 2000, after Bank Governor Andrew Bailey warned of further increases if inflation fails to show clear signs of slowing.

Reported with Associated Press

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