The Bank of England (BOE) today (Thursday) raised interest rates to its highest level in 13 years, in an attempt to cope with rising inflation.
Read more in Calcalist:
While expected and widely agreed, the bank’s policymakers have voted for a fourth straight interest rate hike since December, at a time when millions of UK households are facing skyrocketing living costs.
By a majority of six supporters against three opponents, the bank’s monetary policy committee approved an interest rate increase of 0.2% to 1%. Opponents of the decision who were in the minority preferred a sharper rise of 0.5% to a level of 1.25%.
Like other central banks around the world, the bank has the task of balancing rising inflation in recent months, which has gained momentum following Russia’s invasion of Ukraine.
Annual inflation in the UK last March reached 7% – a 30-year high, more than 3 times the central bank’s inflation target, due to a sustained jump in food and energy prices. Meanwhile, consumer confidence in the UK plunged and approached a low in April, amid fears of a slowdown in economic growth.
The Bank estimates that inflation in the UK will rise to 10% this year as a result of the war between Russia and Ukraine and the rigid closures in China. The bank also warned that prices are expected to rise at a faster rate relative to the increase in the income of many people, which will exacerbate the problem of the cost of living.
“Global inflationary pressures have intensified following the Russian invasion of Ukraine,” the central bank said in a statement. “This has led to a significant deterioration in the growth forecast for the world in general and for the UK in particular.”
The bank’s governor, Andrew Bailey, has warned in the past that the bank is on a “thin line” between growth and inflation, hinting that the bank may seek an approach that supports monetary tightening and will not necessarily follow the US Federal Reserve raised interest rates by 50 basis points yesterday. 0.75% -1% This is the Fed’s sharpest interest rate hike in two decades and the Fed’s most aggressive move in its rise in rising inflation, which reached a 40-year high.
The bank noted that, according to estimates, UK GDP rose by 0.9% in the first quarter of the year, higher than expected in February. The unemployment rate fell to 3.8% in the three months to the end of February, and is expected to continue to decline in the coming months. More and higher inflation is a challenge for many policymakers, and is reflected in the disagreements revealed in today’s vote at the bank, “commented Hussein Mahdi, investment strategist at HSBC’s asset management division.” However, inflation is expected to remain high over a longer period in 2022, policy “The tightening of the bank remains in autopilot mode in the face of concerns about secondary consequences from tightened labor markets,” he added.