Bank of England raises interest rates to 13-year high as inflation soars
The Bank of England raised interest rates for a fifth consecutive meeting, putting them at a 13-year high, and sent its strongest signal yet that it is ready to trigger bigger moves if needed to control inflation. The nine-member Monetary Policy Committee voted 6-3 to raise the benchmark lending rate by 25 basis points to 1.25%. A minority of officials maintained their push for a move double that size.
Policymakers led by Governor Andrew Bailey hinted they could join a growing global trend of bigger hikes if inflation continues to soar, saying that “he would be particularly alert to indications of higher inflationary pressures. persistent and would act forcefully in response if necessary”.
Basically, that language was endorsed by all BOE voters, a departure from May when two declined to endorse advice that more hikes were needed.
The bank also raised its forecast for peak inflation this year to “slightly above” 11%, reflecting the expected increase in the energy price cap in October, and said it now expects the economy to contract in the current quarter.
Investors have increased their bets for further rate hikes this year, pegging a base rate of 3% by the end of the year. That would likely require three half-point and one quarter-point rate increases in the four remaining meetings this year, an unprecedented pace of tightening. Rates were just 0.1% as recently as December.
For now, the BOE, which was the first major central bank to raise rates after the pandemic, is moving more slowly than some of its peers. But as the BOE grapples with an inflation rate that has already hit a four-decade high of 9%, officials are also worried about an economic slowdown that puts the UK at risk of recession.