British economy (Shutterstock photo)
The Central Bank of England today (Thursday) raised the interest rate by a quarter of a percentage point to 4.25% in response to higher than expected inflation.
In two weeks of heightened uneasiness in global financial markets, the Bank’s Monetary Policy Committee (MPC) voted by a majority of seven to two to raise the base rate for the 11th time in a row.
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It comes after an unexpected jump in Britain’s annual inflation rate in February to 10.4% from 10.1% in January, fueled by food prices rising at the fastest rate in 45 years. The bank’s official target for inflation growth is 2%.
The bank also said that the forecast for the economy has improved slightly and it no longer foresees a technical recession, in which the economy contracts for two consecutive quarters.
Central banks on both sides of the Atlantic pushed through interest rate hikes despite fears of a Silicon Valley bank collapse and the Swiss government’s brokering of Credit Suisse’s bailout by rival lender UBS. The US Federal Reserve raised its interest rate on Wednesday by a quarter of a percentage point to a range of 4.75% to 5%.
In a move expected by many traders after UK inflation rose, the MPC said growth in the UK economy was holding up better than expected as the nine-member rate-setting panel raised borrowing costs to the highest level since the 2008 crash.
However, he indicated that inflation would fall “sharply” over the coming months amid falling global energy prices, in a potential sign that the MPC’s most aggressive attack on inflation yet may be over.
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