Bank of England Raises Interest Rates to 4.5%, Highest Level in 15 Years


The Bank of England raised interest rates on Thursday, its 12th consecutive increase, as Britain’s inflation rate remained stubbornly in double digits.

Policymakers raised the central bank’s key interest rate by a quarter of a percentage point to 4.5 percent, the highest since 2008. Long and aggressive policy tightening continues as Britain experiences higher inflation than the United States and Western Europe. Consumer prices rose 10.1 percent in March from a year earlier, the latest data showed, as food prices rose faster than expected, along with other commodity prices.

According to the minutes of the bank’s meeting this week, the rate hike is due to “the risk of more sustained strength in domestic price and wage setting”.

Britain’s inflation rate is expected to ease more slowly than the central bank expected three months ago, mainly because food price inflation is forecast to moderate. In March, food prices were nearly 20 percent higher than a year earlier, the fastest pace of inflation in more than 45 years.

By the end of the year, core inflation, which includes food and energy prices, is forecast to fall to 5.1 percent, according to central bank forecasts. Data published later this month for April is expected to show the start of another significant slowdown in inflation as increases in household energy bills will be excluded from annual inflation calculations. A year ago, household energy bills rose by more than 50 percent after the war in Ukraine drove up wholesale prices.

As the Bank of England tries to bring inflation down to its 2 percent target, good economic news could complicate its mission. When the central bank last published its forecast three months ago, it had a particularly pessimistic view of the British economy, predicting five quarters of economic contraction and a mild recession. On Thursday, it unveiled the biggest upgrade to its economic forecasts in the bank’s history, due to lower wholesale energy prices and additional fiscal stimulus from the government. It no longer predicts any quarter of economic contraction.

Rather than a recession, this better-than-expected growth, along with low unemployment and rising consumer confidence, may allow some inflationary pressures in the economy to persist longer than previously thought.

Still, the upgraded economic outlook is likely to provide only limited comfort to households and businesses. The forecast is weak: according to bank estimates, the economy will grow by about a quarter percent this year.

Read original article here

Leave A Reply