Bank of England: Raises its interest rate to 1% – the highest since 2009

The Bank of England today raised its interest rate to 1%, the highest level since 2009, as it intensifies its efforts to tackle inflation, which is now approaching 10%.

The bank’s monetary policy committee voted 6-3 to increase its interest rate by 25 basis points, from 0.75% previously. Three members of the commission, Catherine Mann, Jonathan Haskel and Michael Saunders, called for a higher increase to 1.25% in order to address the risk of consolidating inflationary pressures in the economy.

Analysts in a Reuters poll expected the commission to vote 8-1 to raise interest rates to 1%, with one member disagreeing with the increase.

Central banks around the world are struggling to cope with the price rally, which just a few months ago estimated that it would be “a temporary phenomenon” due to the opening of economies after the lockdowns to stem the pandemic. Russia’s invasion of Ukraine, however, has caused energy prices to plummet as new lockdowns in China continue to disrupt global supply chains, fueling inflationary pressures.

The Bank of England said today that it remains concerned about the impact of Covid-19 halting measures in China on global supply chains.

This is the fourth consecutive rate hike since December, with the Bank of England having seen the fastest increase in borrowing costs in 25 years. At the same time, the central bank appeared more aggressive in its next moves, despite concerns about the risk that tightening monetary policy could lead to a sharp slowdown in the economy.

The Bank of England said officials were considering “how some degree of further tightening may still be needed in the coming months”, while removing the word “moderate” to describe the magnitude of future interest rate hikes.

British inflation climbed to a 30-year high of 7% in March, more than three times the bank’s 2% target. The latest, upward revised estimates of the bank place inflation above 10% in the last quarter of the year.

The Bank of England, however, kept its growth forecast unchanged at 3.75% this year, although it reduced its estimate for 2023 to a 0.25% contraction from a 1.25% growth. For 2024, it reduced its growth forecast to 0.25% from 1.0% previously.

The Bank of England has finally announced that it will draw up a plan to start selling government bonds it bought from the outbreak of the global financial crisis more than ten years ago.