China’s central bank cut its key interest rate for the first time in almost two years to support an economy that has lost momentum because of a property slump and repeated coronavirus outbreaks.

In a notable policy divergence with other major economies, the People’s Bank of China on Monday lowered the rate at which it provides one-year loans to banks by 10 basis points. This was the first reduction since April 2020.

While inflation is the dominant concern for central bankers in Europe and the US, China’s relatively stable prices mean policymakers have shifted their attention to boosting growth. Official figures show that gross domestic product rose four per cent last quarter from a year earlier, the weakest economic growth since early 2020 during the thick of the pandemic.

Meanwhile, the World Bank slashed its forecast for global economic growth, warning that a rise in inflation, debt, and income inequality could jeopardise the global recovery in emerging and developing economies.

In its latest Global Economic Prospects report, the World Bank said that global growth is expected to slow to 4.1 per cent in 2022 and 3.2 per cent in 2023, as more countries start unwinding unprecedented levels of fiscal and monetary policy stimulus intended to support their economies during the pandemic.

The projections follow a strong rebound in global growth, as demand soared after lockdowns were lifted. The World Bank estimates that the world economy grew by 5.5 per cent last year. It warned, however, that COVID-19 continues to cast a shadow over growth prospects.

Finally in the UK, inflation jumped to 5.4 per cent in December, its highest rate in 30 years, deepening a cost-of-living crisis that is squeezing household incomes and adding pressure on the Bank of England (BoE) to hike interest rates at the February monetary policy meeting.

Inflation was forecast to rise to 5.2 per cent, marginally higher than November’s 5.1 per cent print. The large annual rise in the consumer price index reflected widespread increases in the cost of most goods and services.

The BoE is walking on a tightrope, having failed to anticipate the surge in inflation. It is under pressure to raise interest rates to curb spending and bring inflation down towards its two per cent target, without squeezing household budgets too far and disrupt the fragile recovery.

This report was compiled by Bank of Valletta for general information purposes only.