CEM REPORT | The Bank of England on Thursday raised interest rates to their highest level in 13 years in a bid to tackle soaring inflation, CNBC reported.
Policymakers at the BOE voted for a fourth consecutive rate hike since December at a time when millions of U.K. households are grappling with skyrocketing living costs.
The Bank’s Monetary Policy Committee approved a 25-basis point increase by a majority of 6-3, taking the base interest rate up to 1%. The Bank said the members in the minority preferred to increase interest rates by 0.5 percentage points to 1.25%.
Like many central banks around the world, the BOE is tasked with steering the economy through an inflation surge that has been exacerbated by Russia’s unprovoked onslaught in Ukraine.
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Annual U.K. inflation hit a 30-year high of 7% in March. The Bank expect the inflation to rise to roughly 10% this year as a result of the Russia-Ukraine war and lockdowns in China. It has also warned that cost of living crisis will deepen as prices are likely to rise faster than income for many people.
According to CNBC, Sterling hit a low of 1.2393 against the dollar on Thursday afternoon London time, the lowest level since Jul. 1, 2020. The U.K. currency was last seen trading at $1.2405, down more than 1.7%.
“Global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine,” the Bank’s MPC said. “This has led to a material deterioration in the outlook for world and UK growth.”
In its updated forecasts, the Bank highlighted the looming recession risk for the world’s fifth-largest economy. The BOE said it now expects gross domestic product to contract in the final three months of the year, partly reflecting the projected large hike in household energy bills in October.
It is at this time that the Bank also sees U.K. inflation reaching its peak of 10.2% — the highest level since 1982.
“UK GDP growth is expected to slow sharply over the first half of the forecast period,” the Bank said. “That predominantly reflects the significant adverse impact of the sharp rises in global energy and tradable goods prices on most UK households’ real incomes and many UK companies’ profit margins.”
