Will the Bank of England hold its rates as US Federal Reserve faces a nasty dilemma?

A new banking crisis has thrown a spanner into the works of interest rate policy, writes James Moore

Brollies out at the Bank of England but will it pause its interest rate rises? (AP)

Which matters more: control of inflation or financial stability? The world’s central bankers now find themselves facing that vexing question, particularly those in the US where there are very real concerns about smaller banks after the collapse of Silicon Valley Bank (SVB) and a “flight to quality” among depositors.

The US Federal Reserve and the Bank of England’s Monetary Policy Committee both meet next week. We’ll look at the US first. The Federal Reserve is further ahead in the cycle than the UK. After a string of chunky rises, it settled on a 0.25 percentage point increase at the last meeting amid hopes that rates were close to their peak.

Last week, February’s US inflation rate came in at 6 per cent, a reduction from the previous 6.4 per cent, which was broadly in line with Wall Street expectations. However, core inflation, which strips out volatile components such as energy and food, barely changed with the annual increase showing at 5.5 per cent compared to 5.6 per cent in January.