The Bank of England has increased interest rates to 0.75 per cent as inflation rates continue to surge.
On March 16, the Monetary Policy Committee (MPC) had voted eight to one to raise the bank rate.
Inflation had already increased to 5.5 per cent which is the highest rate of inflation in three decades and this is expected to increase up to 8 per cent this year, according to the Bank of England’s March Monetary Policy Summary.
Committee members said the increase was warranted due to the risk of certain pressures persisting, given signs of robust domestic cost, price pressures and a tightness in the labour market.
In its statement, the Bank of England said: “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 inflation rate is higher than the government’s intended inflation target of 2 per cent, set by the MPC. Bank of England Act 1998 gives operational responsibility to the Bank of England to set monetary policy to meet government inflation targets. Operational decisions are then made by the MPC.
In the MPC’s February Monetary Policy Report, GDP growth was expected to slow down. This is a result of previous increases in the UK’s global energy and tradeable goods prices on income and spending. Consumer Price Inflation is expected to reach 7.25 per cent in April 2022.
Russia’s invasion of Ukraine has been condemned by the Bank of England. The bank is working closely with the UK government to support responses with international authorities. The MPC has supported the Bank and has welcomed these actions.
The Bank of England also said Russia’s Ukraine invasion has led to increases in commodity prices such as energy and food. It said: “[This] is also likely to exacerbate global supply chain disruptions, and has increased the uncertainty around the economic outlook significantly. Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow.”
The MPC said it would evaluate and review incoming data and its implications (such as economic implications of recent geopolitical events) for medium term inflation. This will form part of the MPC’s forthcoming forecast ahead of the May 2022 Monetary Policy Report.
Minutes from the MPC’s scheduled May 4 meeting will be available and published the following day on May 5 2022 on the Bank of England website.