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Interest rates rise to 1.25% while the Bank of England struggles with rising inflation

The Bank of England climbed to the base interest rate to 1.25 percent amid warnings that inflation could exceed 11 percent in October.

Bank Monetary Policy Committee announced its decision Thursday, seeking to harden inflation and combat low economic growth.

This is the fifth increase in a row and the increase in the base interest rate from 1 percent to 1.25 percent – the highest rate in 13 years.

Inflation jumped to 9 percent in the 12 months to April, up 2 percent from March, and is expected to rise even higher.

An inflation peak of 11 percent is projected in October, with rising fuel and food prices leading to higher living costs.

“The scale, pace and timing of any further increase in bank rates will reflect the Committee’s assessment of economic prospects and inflationary pressures,” the Bank of England said in a statement.

“The committee will be particularly vigilant against signs of more sustained inflationary pressures and will act decisively in response if necessary.”

The decision of the Bank of England to raise the key rate by 0.25 percent lagged behind the actions taken by the US Federal Reserve on Wednesday. The Fed raised the base rate by 0.75 percent to 1.75 percent, the most aggressive increase since 1994.

Governor of the Bank of England Andrew Bailey

(Reuters)

“It is soon becoming clear that the Bank of England needs to take more drastic action to establish a sense of stability, because tinkering with the edges is simply not cutting,” said Michael Husson, chief market analyst at CMC Markets UK. note to customers.

Three of the nine members of the Monetary Policy Committee voted for an even bigger increase on Thursday, arguing that rates should rise to 1.5 percent.

“Due to the persistence of strong pressure on prices and prices, including the current toughness in the labor market, and the risk that the pressure will become more stable, the committee voted to increase the Bank’s rate by 0.25 percentage points,” – said in a statement. .

Commenting on the rate hike, David Bharrier, head of research at the British Chambers of Commerce, said: “Although the decision to raise interest rates is expected to add more concern to businesses amid weakened economic prospects, rising costs and labor shortages.

“The increase is a testament to the Bank’s intention to fight inflation, but businesses are raising concerns about rising prices from early 2021, and higher interest rates are unlikely to eliminate many of the global reasons for this.”

In its reports on Thursday, the Bank also downgraded its gross domestic product (GDP) forecast for the second quarter. GDP is now expected to decline 0.3 percent for the quarter, which is weaker than expected about a month ago.

This is the only time since the beginning of the record in 1694, when the base interest rate was set at 1.25 percent. In February 2009, the rate was reduced from 1.5 percent to 1 percent, skipping the intermediate step.

Shadow Treasury Secretary Pat McFadden said: “Many families will be worried about the impact this will have on their household accounts.

“We need a plan for a stronger and more stable economy that can overcome short-term challenges and fix the foundations for the long term.”

Additional reporting from agencies

Interest rates rise to 1.25% while the Bank of England struggles with rising inflation

Source link Interest rates rise to 1.25% while the Bank of England struggles with rising inflation

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