Following an inflationary shock, the Bank of England raises interest rates once more.

The Bank of England raised interest rates by a quarter percentage point on Thursday, extending its long-running battle to keep prices under control following a surprise increase in inflation in February.

The central bank’s 11th rate hike in a row raises benchmark borrowing costs to 4.25%, the highest level since October 2008. Despite recent turmoil in the banking sector, it has continued to raise interest rates, as have other major central banks.

The Bank of England stated in a statement that inflation “had surprised significantly on the upside since its last meeting in February, and the near-term path of GDP was likely to be somewhat stronger than previously expected.”
Employment growth had also been stronger than expected, and household disposable income was now expected to remain flat in the near term – rather than fall significantly – after the government extended its support for energy bills, according to the bank.

It stated that rates would be raised further “if there was evidence of more persistent [price] pressures.”

However, wage growth, which remains below inflation, is expected to slow “more quickly” than predicted in February, according to Bailey.

The Bank of England’s inflation target is 2%.
A delicate act of balancing

It was announced by the Bank of England that it would “continue to closely examine” the impact of the banking crisis on the availability of credit to consumers and companies. The UK financial system “remains resilient,” it continued.
The Bank of England has a tougher time of it this year because the UK economy is predicted to decline.

According to some economists, the central bank may even consider cutting interest rates by the end of the year.

Since December 2021, the Bank of England has raised interest rates at each of its rate-setting meetings.


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