The Bank of England raised its key rate for a third policy meeting in a row as inflation is forecast to climb even higher after the Russia’s invasion of Ukraine. <\/p>\n
Policymakers led by Governor Andrew Bailey decided to raise the key interest rate, the bank rate, by 25 basis points to 0.75 percent.<\/p>\n
The Monetary Policy Committee voted by a majority of 8-1 to hike the rate by 0.25 percentage points. Policymaker Jon Cunliffe preferred to maintain the rate at 0.5 percent.<\/p>\n
The UK central bank had raised its rate by 0.15 percentage points at its December meeting and by 0.25 percentage point in February.<\/p>\n
Given the current tightness of the labor market, continuing signs of robust domestic cost and price pressures, and the risk that those pressures would persist, most MPC members judged that a quarter-point rate hike was warranted at this meeting, the bank said.<\/p>\n
“The Committee judges that some further modest tightening in monetary policy may be appropriate in the coming months, but there are risks on both sides of that judgement depending on how medium-term prospects for inflation evolve,” the bank said.<\/p>\n
The announcement came after the U.S. Federal Reserve had raised its key rate for the first time since 2018, on Wednesday.<\/p>\n
Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow, the BoE said.<\/p>\n
The bank said the effects of Russia-Ukraine war would likely accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes.<\/p>\n
Inflation was expected to rise to around 6 percent in February and March, before rising further, to around 8 percent in April, and remaining close to that rate for the rest of the quarter. The latter would be around 1 percentage point higher than expected in the February Report.<\/p>\n
Inflation is set to be higher than the bank expects and, activity and the labor market will be a bit more resilient, Paul Dales at Capital Economics, said. The MPC is likely to change its tune and raise interest rates to 1.25 percent this year and to 2.00 percent next year, the economist added.<\/p>\n
Regarding future moves, a fourth hike is possible in May but there is a good chance of a pause after that, economists at ING said. <\/p>\n
The BoE forecast the UK GDP to grow by around 0.75 percent in the first quarter of 2022, which was stronger than the February Report projection for a flat quarterly out-turn. This now-cast assumed that some of the surprising strength in non-Covid related activity in recent months persisted through the quarter. <\/p>\n