The Bank of England has raised interest rates to pre-epidemic levels in an effort to control inflation, the highest in 30 years.
The central bank’s monetary policy committee voted 8-1 to raise inflation by 0.25 percentage point to 0.75 per cent in an effort to control inflation, which is 5.5 per cent and is likely to continue due to rising global energy prices. One member of the committee voted to keep the rate at 0.5 percent.
The bank now expects inflation to reach 8 percent next month, up from last month’s forecast of 7.25 percent. Officials warn, however, that in October when households receive their gas bills, which are calculated based on energy prices in the first half of the year, inflation could be “several percentage points” higher than its February estimate. The utility price cap, which rose 54 percent in April, could be “substantially higher” again if it is reset in the fall, according to central bank officials.
The decision did not come as a shock to the financial markets, which prior to the meeting had set a price target of 100 per opportunity that would raise interest rates by 0.25 points. The FTSE 100, which was trading flat before the decision, rose 27 points, or 0.4 percent, to 7,319, and the further UK-centric FTSE 250 fell 2 points to 20,898.69.
More than a quarter of mortgage borrowers, about 2.2 million, have home loans linked to the base rate and can expect their mortgage bills to rise. Savers are expected to be disappointed. Rachel Springall, a finance expert at Moneyfacts.co.uk, said: “None of the largest high-street banks have increased the last two base rates for savers who have easy access to accounts.”
Despite the start of the war in Ukraine and the rise in global oil and gas prices since its last meeting in early February, the bank has downplayed the possibility of future rate hikes. Officials say further “mild austerity” in monetary policy in the coming months may be “appropriate.” They warned earlier that the rate would increase.
Increasing interest rates increases the cost of borrowing and gives higher returns on savings. It aims to encourage people to save rather than spend, reducing demand and theoretically costing. The bank’s target inflation rate is 2 percent.
Officials say that if the war in Ukraine hits the economy, high global energy prices will drag revenue and spending into the UK because it is a net importer of these products. “It’s something that monetary policy can’t resist,” they said in the minutes of the meeting.
The war is likely to disrupt global supply chains and increase uncertainty over the outlook for the economy, they said, adding: , May be slow. “
The price increase is not only due to the price of electricity. The consumer price index rose to 5.5 percent in January from 5.4 percent in January due to rising clothing and footwear prices, raising concerns among economists that inflation is becoming embedded in the economy, not just external factors. . February figures are expected next week.
Unemployment fell to a record low of 3.9 percent in the three months to January, and vacancies continued to rise, reaching a record high of 1.3 million in February.
The Bank of England expects economic growth to be stronger than previously expected at the beginning of the year, but by the end of the year it is expected to be slower than previously expected.
John Conleaf, an internal member of the committee who voted in favor of raising the rate in the last three meetings, chose to keep the rate at 0.5 percent to give more time to make a full assessment of the current volatility of commodity prices.
The take-home pay cut could be “materially greater” than the 2 percent cut projected in the February report, the committee said. Officials warned last month that real income, the value of earnings after adjusting for the effects of inflation, would fall fivefold after the 2008 financial crisis.
Sage Sunak, the chancellor, is under pressure to introduce tax breaks and spending plans in his spring statement on Wednesday next week. The statement, which was not intended to be a “mini-budget”, is expected to introduce new policies to help households and businesses cope with rising living costs.