The Bank of England (BOE) yesterday raised interest rates by a bigger-than-expected half a percentage point after it said there had been “significant” news suggesting British inflation would take longer to fall.
The bank’s Monetary Policy Committee (MPC) voted 7-2 to raise its main interest rate to 5 percent from 4.5 percent, its highest since 2008 and its largest rate increase since February, following higher-than-expected inflation data released on Wednesday.
“There has been significant upside news in recent data that indicates more persistence in the inflation process,” the committee said.
Photo: Reuters
“Second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge,” it added.
Official figures on Wednesday showed consumer price inflation was unchanged at 8.7 percent last month and underlying inflation rose to its highest since 1992.
Last month the central bank forecast that inflation would fall to just over 5 percent by the end of this year and be below its 2 percent target in early 2025.
“The MPC will do what is necessary to return inflation to the 2 percent target sustainably in the medium term,” BOE Governor Andrew Bailey said in a regular letter to British Chancellor of the Exchequer Jeremy Hunt alongside the rate-hike decision.
The Bank of England’s rate increase follows the European Central Bank’s decision last week to raise rates by a quarter-point to 3.5 percent.
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