The Bank of England (BoE) yesterday raised its main interest rate for a fifth straight time, as it forecast British inflation to soar further this year to above 11 percent.
BoE policymakers agreed at a regular meeting to increase the cost of borrowing by a quarter-point to 1.25 percent, the highest level since the global financial crisis in 2009.
The British pound slumped 1 percent against the US dollar following the announcement, one day after the US Federal Reserve raised interest rates far more aggressively to fight runaway consumer prices in the world’s biggest economy.
Photo: AP
The BoE’s latest rise was in response to “continuing signs of robust cost and price pressures ... and the risk that those pressures become more persistent,” minutes of the UK meeting said.
A minority of BoE policymakers had voted for an increase to 1.5 percent.
The Bank of England is avoiding “shock and awe tactics being employed across the Atlantic,” AJ Bell investment analysis head Laith Khalaf said.
“Despite the UK starting to tighten monetary policy first, interest rates are now higher in the US,” he said.
The Fed on Wednesday announced the most aggressive interest rate increase in nearly 30 years — and said it is prepared to do so again next month in an all-out battle to drive down surging consumer prices.
The Fed’s rate hike of 0.75 percentage points came after US inflation soared to 8.6 percent last month, the highest level in more than four decades.
In the UK, inflation stands at 9 percent, the highest level in 40 years.
Prices are soaring worldwide as economies reopen from COVID-19 lockdowns and in the wake of Russia’s invasion of Ukraine, which is pushing already high energy costs even higher.
British economic output declined for a second consecutive month in April, weighed down by soaring prices, are causing a cost-of-living crisis for millions of Britons, while increasing the risk of a UK recession this year.
Data this week also revealed the first rise in the UK unemployment rate since the end of 2020 — although at 3.8 percent it remains at a near 50-year low point amid record-high job vacancies.
At the same time, the value of average UK wages is falling at the fastest pace in more than a decade.
Fearing fallout from surging inflation, the BoE began to raise its key interest rate in December last year, from a record-low level of 0.1 percent.
In the neighboring eurozone, the European Central Bank is next month set to raise interest rates for the first time in more than a decade.
Switzerland’s central bank hiked its rate yesterday for the first time in 15 years.
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