The Bank of England on Thursday lifted its key interest rate by a quarter of a percentage point to 4.5 per cent, the highest level in almost 15 years in a bid to cool sky-high inflation. The Monetary Policy Committee (MPC) of BOE said that in to meet the 2 per cent inflation target, the committee members voted by a majority of 7–2 to increase Bank Rate.
This is the 12 that straight hike in a row by BoE, amid inflation in the UK remaining stubbornly above 10 per cent and fuelling a cost-of-living crisis.
The BoE warned that “there remain considerable uncertainties around the pace at which CPI inflation will return sustainably to the 2 per cent target.” citing “significant” upside risks.
“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required,” the BoE added.
It also said that “absent a further shock, there is likely to be only a small impact on GDP from the tightening of credit conditions related to recent global banking sector developments.”
BoE expected the UK economy to now swerve into recession this year.
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The BoE’s decision comes a week after the Conservative government, led by UK Prime Minister Rishi Sunak, suffered a defeat in local elections as voters voiced their frustration with high living costs, despite government efforts to subsidize energy bills, reported AFP.
Adding that high inflation has resulted in strikes and train workers are set to walk out again on Friday after months of industrial action across both private and public sectors. The latest rate hike is expected to worsen the living standards crunch as retail banks pass on the increase, leading to higher loan repayments, including mortgages.
However, the report also notes that this hike by BoE will benefit those with savings as they get increased fixed returns on investments. Thursday’s rate hike took British borrowing costs to a level last seen in October 2008, before rates were slashed during the global financial crisis.
The BoE has ramped up borrowing costs from a record-low of 0.1 per cent in December 2021, the report noted.
This came one week after the European Central Bank and the US Federal Reserve implemented a similar quarter-point rate increase as inflationary pressures eased only slightly in the EU and the US.
In the UK, annual inflation stood at 10.1 per cent in March, according to AFP, touching the highest level in the G7 countries. Inflation worldwide has been dragged higher also by soaring food prices.