CEM REPORT, ECONOMY | British economy’s policymakers have raised its interest rate by a quarter-point to 4.5 per cent.
The raise is the 12th in a row and the highest since the 2008 financial crisis.
The Bank of England (BoE) warned of “considerable uncertainties” on when UK inflation would return to its two per cent target, as soaring food prices offset sharp drops in energy costs.
UK annual inflation has remained above 10 per cent, the highest level in the Group of Seven richest nations.
AFP reports that the latest hike comes one week after the European Central Bank and the Federal Reserve implemented quarter-point rate increases as inflationary pressures ease only slightly in the eurozone and the United States.
UK Prime Minister Rishi Sunak and the BoE blame the high level in part on rises to pay and have urged employers to show restraint.
The latest BoE hike is set to deepen the crunch in living standards as retail banks pass on the increase, resulting in higher repayments on loans, including mortgages.
At the same time, those who can afford to save will benefit from increased fixed returns on investments.
“Although it is good news that the Bank of England is no longer forecasting a recession, today’s interest rate rise will obviously be very disappointing for families with mortgages,” said British finance minister Jeremy Hunt.
On the bright side, BoE governor Andrew Bailey told newsmen the UK would this year experience “modest but positive economic growth and a much smaller increase in unemployment.
Also, BoE made a record upgrade to its British GDP forecast, adding there would be only a small impact from the recent turmoil in the commercial banking sector.
“We think inflation will fall quite sharply over the coming months.
“Six months ago, we were expecting a shallow but long recession,” BoE governor Andrew Bailey told a press conference.
“Since then, energy prices have fallen substantially and economic activity is holding up much better than expected.”