Bank of England Hikes Interest Rate to 13-Year High

Strategic Insights -

The Bank of England has hiked its base interest rate to 1.25 per cent, the highest rate in 13 years, in an attempt to combat rising inflation and poor economic growth. This move follows a series of interest rate hikes, with this being the fifth consecutive increase. The decision aims to temper inflation, which has jumped to 9 per cent in the 12 months up to April, and address poor economic growth. The Bank's monetary policy committee warned of the potential for more persistent inflationary pressures and vowed to take action if necessary. The move has been seen as a response to the war in Ukraine, which has driven up fuel and food prices, contributing to a rise in the cost of living.

Key Takeaways:

  • The Bank of England has raised its base interest rate to 1.25 per cent, the highest rate in 13 years, to combat rising inflation and poor economic growth.
  • This is the fifth consecutive interest rate hike, taking the base rate from 1 per cent to 1.25 per cent.
  • Inflation jumped to 9 per cent in the 12 months up to April, a rise of 2 per cent from March, driven by higher fuel and food prices.
  • The Bank's monetary policy committee warned of the potential for more persistent inflationary pressures and vowed to take action if necessary.
  • The committee will be particularly alert to indications of more persistent inflationary pressures and will act forcefully in response if necessary.
  • Three members of the nine-person monetary policy committee voted for an even bigger hike of 0.5 per cent, arguing that rates should rise as high as 1.5 per cent.
  • The Bank has downgraded its forecast for gross domestic product (GDP) for the second quarter of the year, expecting a drop of 0.3 per cent across the quarter.
  • Economics experts have expressed concern about the impact of the higher interest rate on the economy, with some arguing that it may not address the global causes of rising prices.

Statistics:

  • The base interest rate has been hiked to 1.25 per cent, the highest rate in 13 years.
  • Inflation rose to 9 per cent in the 12 months up to April, a rise of 2 per cent from March.
  • The Bank's monetary policy committee has downgraded its forecast for gross domestic product (GDP) for the second quarter of the year, expecting a drop of 0.3 per cent across the quarter.
  • The base interest rate is now 0.25 per cent higher than in January.
  • The Bank of England has raised its benchmark rate by 0.25 per cent, compared to the US Federal Reserve's 0.75 per cent hike.

Sources:

  • "Bank of England raises interest rate to 1.25% in bid to tackle inflation and poor economic growth." (The Guardian)
  • "Bank of England hikes interest rate to 13-year high as inflation soars." (The Telegraph)
  • "Bank of England raises interest rate to 1.25% as inflation hits 9%." (The Times)
  • "Bank of England sets 13-year high interest rate as it battles to tame inflation." (The Daily Mail)
  • A note from Michael Hewson, chief market analyst at CMC Markets UK, released to clients.