Interest rates have been hiked to their highest for 14 years in an attempt to slow the soaring cost of living.
The Bank of England’s decision to lift rates to 4.25% from 4% comes after inflation rose unexpectedly last month.
It also follows the collapse of two US banks and the rescue of Swiss lender Credit Suisse, but the Bank said the UK financial system was “resilient”.
The jump in rates means that mortgage costs for some homeowners will rise and some savers could get better returns.
The Bank has been steadily putting up interest rates in an attempt to tackle rising prices.
Inflation, which is the rate at which prices rise, remains close to its highest level for 40 years at 10.4% in the year to February – more than five times what it should be.
The Bank voted to raise rates after the unexpected rise in inflation last month, but said it still expected the cost of living “to fall sharply over the rest of the year”.
It said this was largely due to the government extending energy bill help in the Budget to maintain typical household bills at £2,500 a year, as well as falls to wholesale gas prices.
The high price of energy has been the main driver over the past year, with gas and oil prices surging in the aftermath of Russia’s invasion of Ukraine.
Other factors such as worker shortages and food costs have also fuelled price rises.
UK inflation is currently higher than any other of the world’s advanced economies.
The nine members of the Monetary Policy Committee who vote on interest rates agreed on a rise by a majority of seven to two, with the Bank saying “cost and price pressures have remained elevated”.
But in line with the government’s official independent forecaster, the Bank said the UK was no longer heading into an immediate recession with the economy expected to grow “slightly” in the coming months, rather than shrinking as previously forecast.
Today’s interest rate rise could be the last. The pace of rises is slowing and inflation is now expected to fall faster than expected, as a result of Budget measures.
The Bank repeated language that further rises would be required “if there were evidence” of more inflationary pressures. The Bank’s discussions suggested that some of that pressure, for example from wage growth, was declining even after Wednesday’s shock inflation number. The next meeting in May is now a key point, where new quarterly forecasts for the economy and inflation could underpin a pause in rate rises.
While the British economy is better than feared, with no immediate recession expected, there are concerns about the impact of global financial fragility. The UK remains resilient. But that is another cloud weighing over the Bank’s decisions, with some memories of the quickly-reversed rises made by the Bank even after the credit crunch started in 2007.
However, absent that new cloud there is some good news about the UK economy here. The consumer seems to be more resilient to what was an extraordinary energy shock. Unemployment is not now expected to rise. The economy may still be flat, but given the size of the energy shock, it could have been much worse.
Source – BBC News
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