US must accept need for new global financing pact

The Bank of England announced on Thursday that it will raise its benchmark interest rate from 4.5 percent to 5 percent, the 13th consecutive rate hike since December 2021.

Given that the CPI rose 8.7 percent year-on-year in the UK in May, higher than the 8.5 percent market forecast and the 8.3 percent projection by the central bank, the decision to raise interest rates was in line with market expectations, but an increase of 50 basis points was higher than expected.

Analysts believe it demonstrates the BoE's determination to control inflation, which exceeded expectations for the fourth month in a row in the UK in May by rising to 7.1 percent, the highest since March 1992. As inflation remains high, the negative effects brought by the wage-price spiral are becoming apparent, suggesting that a recession may be needed to tame inflation.

At a time when the US Federal Reserve has paused interest rate hikes, the BoE's decision to raise interest rates will quickly close the interest rate gap with the United States. This will help support the exchange rate of the pound against the US dollar in the short term, prevent the price of imported goods and services from rising, and improve the severe capital outflow after the UK's pension crisis and the European banking crisis.

The US and the UK often present themselves as close allies, but are actually strange "bedfellows". In early June, the two countries agreed to strengthen cooperation in a number of areas to ensure economic security. However, the economic security problems caused by the two allies' "mutual calculation" don't seem to be small.

On June 15, a US Department of Treasury report showed that the UK was the country that reduced holding of US debts the most in April. The UK had earlier significantly increased its holdings of US Treasuries when the Fed aggressively raised interest rates. Whether the UK buys or sells US bonds, it is always guided by its own interests.

In his opening speech at the Summit for the New Global Financing Pact in Paris, French President Emmanuel Macron said that the existing international financial system arises from an old consensus that has not adapted to new situations, and it is necessary to create a new global financing pact. How did the US feel when it heard Macron's remarks?

- ECONOMIC DAILY