The Bank of England yesterday raised interest rates by half a percentage point as it sought to tame double-digit inflation that is fueling a cost-of-living crisis, public-sector strikes and fears of recession.
The bank’s monetary policy committee voted 7-2 to push its key rate to 4 percent, approving the 10th consecutive rate increase since a post-COVID-19 pandemic surge in the world economy and Russia’s war in Ukraine drove inflation to 40-year highs.
Economists suggest this might be the last big rate increase for Britain’s central bank as inflation begins to slow.
Photo: EPA-EFE
“The extent to which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far,” the bank said in a statement. “There are considerable uncertainties around the outlook.”
The US Federal Reserve has already started tapering its response, boosting its key rate by just a quarter-point on Wednesday. Meanwhile, the European Central Bank yesterday also raised its interest rates by half a percentage point.
Optimism grew that rate increases might begin to tail off after UK inflation eased for a second straight month to 10.5 percent in December, down from a peak of 11.1 percent in October.
With the cost of food and services rising and wage increases outstripping forecasts, the bank sent the message that it is serious about fighting inflation even as energy prices fall and concerns about sluggish economic growth take center stage.
“Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom,” the bank said. “Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand.”
After more than a decade of record-low interest rates, the Bank of England began raising borrowing costs in December 2021, when its key rate stood at just 0.1 percent. The bank stepped up its fight against inflation last year, approving four big increases of a half-point or more since August to bring the rate to 3.5 percent.
Inflation soared after Russia’s invasion of Ukraine fueled sharp increases in food and energy prices, leading to the UK’s biggest drop in living standards since the 1950s. That has triggered a wave of strikes — including the biggest day of industrial action in more than a decade on Wednesday — as nurses, train drivers, border guards and teachers demand pay increases.
Rising prices are also choking off economic growth and squeezing public finances, as the government spends billions of US dollars to help consumers and businesses hit by high energy costs this winter.
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