© Reuters. FILE PHOTO: City workers walk past the Bank of England in London February 13, 2008. REUTERS / Toby Melville
By Andy Bruce and David Millliken
LONDON (Reuters) – The Bank of England raised interest rates on Thursday in an attempt to stem rapidly accelerating inflation from turning severe, but with households facing a massive hit from energy bills. soaring, it softened its language of increased demand.
Eight out of nine members of the Monetary Policy Committee (MPC) voted to raise the Bank Rate from 0.5% to 0.75%, the third rate hike in many meetings and bring the return to pre-pandemic levels.
On Wednesday, the US Federal Reserve also raised borrowing costs, the first time it has done so since the COVID-19 pandemic.
BoE Deputy Governor Jon Cunliffe was the sole proponent of leaving rates unchanged, warning of a big hit to demand from higher commodity prices. Economists polled by Reuters had expected a unanimous vote.
The BoE said inflation was set to hit around 8% in April – one percentage point closer to last month’s forecast and four times its 2% target – and warned it could peak. more later this year.
Soaring energy bills, made even higher by the conflict in Ukraine, mean that the UK’s household budget squeeze could be much bigger than the BoE predicted last month – which itself It has been considered the largest in 30 years.
Reflecting worries about the growth outlook, policymakers on Thursday pushed back against investors’ bets that Bank Rates will rise sharply to around 2% by the end of the year, down slightly. their language of increased need.
“The Committee assesses that some more modest tightening may be appropriate in the coming months, but there are risks on both sides of that assessment depending on how the medium-term outlook develops.” BoE said.
Last month, the MPC said a modest further tightening “may be appropriate”.
The pound fell nearly a cent against the dollar and UK government bond prices soared as investors cut bets that the BoE would raise interest rates quickly this year.
“The MPC is taking steps to combat rising inflation. But they’re going to go a bit tight in the coming months,” said economist Alpesh Paleja of the Confederation of British Industry.
Samuel Tombs, an economist at Pantheon Macroeconomics, said an end to BoE rate hikes was in sight.
“Today’s minutes give us more confidence in our view that the rate hike cycle will stall after the Committee raises the Bank Rate to 1.00%, most likely in the coming months,” he said. next meeting in May”.
While the assessment of inflation expectations is stabilizing right now, a majority of the committee said they raised rates to reduce the risk that recent trends in wage and price growth will turn into expectations.
Businesses surveyed by the BoE are expected to see wage increases between 4%-6% this year, compared with 2.5%-3.5% in 2021.
The BoE said Russia’s invasion of Ukraine is likely to significantly increase global inflationary pressures in the coming months and add to supply chain disruptions.
Fusion Media or anyone associated with Fusion Media shall not bear any liability for loss or damage resulting from reliance on information including data, quotes, charts and buy/sell signals contained in this site. Please be fully informed of the risks and costs associated with trading in financial markets, which are among the riskiest forms of investment possible.