Global Courant 2023-05-11 17:13:17
The quarter percentage point increase to 4.5 was expected, but the 12th increase in a row is cause for concern.
The Bank of England has raised interest rates to the highest level since late 2008 as it continues to fight stubbornly high inflation in the UK.
Thursday’s decision by the bank’s nine-member Monetary Policy Committee to raise its key interest rate by a quarter of a percentage point to 4.5 percent was widely anticipated in financial markets.
The increase was the 12th in a row. Only two members of the bank’s nine-member panel voted to keep interest rates unchanged.
Andrew Bailey, governor of the Bank of England, told reporters in London after the course change: “The increase in bank rates since December 2021 will weigh more on the economy in the coming quarters and the (Monetary Policy Committee) is taking this into account in its policy decisions.
Like other central banks around the world, the Bank of England has been trying to contain inflation, which was fueled by the Russian invasion of Ukraine over the past year.
This caused high energy prices, a development that subsequently led to price increases for a wide range of goods and services.
The Bank of England began raising interest rates from a low of 0.1 percent in late 2021 to contain price increases.
The bank is tasked with keeping inflation at about 2 percent and said inflation is likely to drop to about 5 percent by the end of this year.
But it warned there were “significant uncertainties” about when inflation would return to its target, citing “significant” upside risks.
If there were any indications of continued pressure, further tightening of monetary policy would be necessary.
Inflation is currently just over 10 percent. In documents accompanying its decision, the bank said food prices have remained high for longer than expected. As a result, consumer price inflation is expected to decline less quickly than previously thought.
The rate hike will put more pressure on borrowers, especially those who have mortgages that follow the bank’s nominal interest rate.
Many homeowners will be immune from the recent increases because they secured their mortgages when interest rates were ultra-low during the coronavirus pandemic.
However, those whose fixed rates expire in the coming months will face much higher interest rates as they look to close new deals.
