Bank of England raises interest rates to 0.75% as inflation soars
The Bank of England has responded to the likelihood that the war in Ukraine will push inflation to around 10% this year by raising interest rates back to the pre-pandemic level of 0.75%.
Threadneedle Street’s monetary policy committee (MPC) voted 8-1 to increase borrowing costs by 0.25 percentage points – the first time the Bank has raised rates at three successive meetings in more than two decades.
The Bank said Russia’s invasion had forced it to rethink its forecast for the peak of inflation this year and it was now expected to be “several percentage points” higher than the 7.25% it had previously forecast.
There had been speculation ahead of the meeting that some MPC members might opt for a half-point increase, but only one – John Cunliffe – dissented from the majority by voting to keep interest rates on hold.
The other eight MPC members decided fresh action was needed to return inflation – currently at a three-decade high of 5.5% – to the government’s 2% target. They stressed the tightness of the labour market and upward pressures on costs and prices.
Minutes of the meeting are likely to stoke fears that the economy is heading for a period of stagflation – weak growth and strong upward price pressures.
“Developments since the February report are likely to accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes” the Bank said.
“Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the UK, is likely to slow.”
The Bank said growth in January had been stronger than expected but consumer confidence was being hit by falling living standards. “That impact on real
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