BOE Governor Andrew Bailey has warned the Bank is walking a “narrow path” between growth and inflation.
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LONDON — The Bank of England on Thursday raised interest rates to their highest level in 13 years in a bid to tackle soaring inflation.
In a widely expected move, policymakers at the BOE voted for a fourth consecutive rate hike since December at a time when millions of U.K. households are grappling with skyrocketing living costs.
The Bank’s Monetary Policy Committee approved a 25-basis point increase by a majority of 6-3, taking the base interest rate up to 1%. The Bank said the members in the minority preferred to increase interest rates by 0.5 percentage points to 1.25%.
Like many central banks around the world, the BOE is tasked with steering the economy through an inflation surge that has been exacerbated by Russia’s unprovoked onslaught in Ukraine.
Annual U.K. inflation hit a 30-year high of 7% in March — more than three times the BOE’s target level — as food and energy prices continue to surge. U.K. consumer confidence, meanwhile, plunged to a near record low in April amid fears of slowing economic growth.
The Bank expects U.K. inflation to rise to roughly 10% this year as a result of the Russia-Ukraine war and lockdowns in China. It has also warned prices are likely to rise faster than income for many people, deepening the cost of living crisis.
BOE Governor Andrew Bailey had previously warned the Bank is walking a “narrow path” between growth and inflation — and implied that the Bank may look to take a more incremental approach to tightening rather than following the U.S. Federal Reserve with a 50-basis point hike.
The U.S. central bank on Wednesday raised its benchmark interest rate to a target rate range of between 0.75% and 1%. It marked the Fed’s biggest rate hike in two decades and its most aggressive step yet in its fight against a 40-year high in inflation.
Sterling traded down 1.2% at $1.2468 shortly after the rate decision. The U.K. currency erased gains from the previous session, falling back toward its lowest level since July last year.
