The Bank of England raised interest rates from 0.5 per cent to 0.75 per cent today in an effort to combat soaring inflation which is now expected
to hit 8 per cent by the end of June.
The quarter-point rise — the third back-to-back increase since December — has returned interest rates to their pre-Covid level and places the Bank of England at the forefront of a global move to tighten monetary policy, following this week’s increase by the US Federal Reserve.
The monetary policy committee said Russia’s invasion of Ukraine would “accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes”.
It now expects inflation to rise to around 8 per cent in the second quarter of 2022 — around 1 percentage point higher than its February forecasts showed — and potentially climb even higher in October, when regulated energy prices are set to rise again.
This means inflation could rise temporarily into double digits: minutes of the MPC’s meeting said that, if the latest rise in energy futures was sustained, CPI inflation could be “several percentage points higher” than had been expected in February, with disruption to global supply chains also threatening to fuel core goods inflation.
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Source: Financial Times (ftonline.com)