Bank of England raises rates to 0.75%, its third consecutive increase
The Bank of England on Thursday raised interest rates in the United Kingdom from 0.5% to 0.75%, its third consecutive increase to contain inflation.
It is the third increase in just four months in an attempt by the British central bank to counteract the rise in the cost of living in the UK, with inflation currently at 5.5%, well above the 2% target set by the Bank.
With the increase announced following the monetary policy committee meeting, interest rates are now at their highest level since March 2020, when the coronavirus pandemic broke out.
The rate hike comes at a time when energy prices and food costs are escalating domestically and globally, while there are concerns that the war in Ukraine will push them even higher.
In justifying the move, the Bank’s monetary policy committee noted that, although last January’s rise in Gross Domestic Product (GDP) was stronger than expected, growth in the UK economy was “likely to slow” due to pressures caused by the invasion of Russian troops in Ukraine.
Only one of the 9 members of the aforementioned committee voted against the hike, citing fears about the impact of the cost of living on the growth of the domestic economy.
“The effects of Russia’s invasion of Ukraine will likely accentuate both a pickup in inflation and the adverse impact on activity, intensifying pressures on household incomes,” warns the Bank in its latest report.
It also warns that the blow to household finances from high energy costs – and its consequent effect on economic activity – will be greater than initially feared.
The bank says the impact suffered by the economy from energy prices and the Russian invasion is “something that monetary policy was unable to prevent.”
Last month, the Office for National Statistics (ONS) indicated that the inflation rate rose by 5.5% in January, while the Bank had previously indicated that it could rebound to 7.25% and now warns that this increase could be even sharper.
“Inflation is expected to rise further in the coming months, to around 8%, by 2022, and perhaps even more by the end of this year,” admits the British entity.