The Bank of England’s monetary policy committee (MPC) has this lunchtime increased UK interest rates by 0.5%, taking rates to 2.25%.
Five members of MPC voted for an increase in interest rates of 0.5%. Three members supported a 0.75% hike, while one member supported a 0.25 increase. There was speculation that the MPC might vote for a higher 0.75% rate increase.
Today’s rise follows a pattern of interest rate increases throughout 2022, with rates having risen from a low point of 0.1% in 2020. Market analysts predict that interest rates will rise further this year. They could reach 3% by the end 2022.
With each 0.25% rise in interest rates said to add £15 per month to the average monthly repayment for someone on a variable rate mortgage, today’s announcement adds to the cost of living pressures currently facing many UK households.
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Ongoing interest rate rises are driven by the Bank of England’s efforts to drive down inflation. The UK’s inflation trend is at 9.9% right now, well above the 2% target for the Bank of England.
In the notes accompanying today’s announcement, the Bank of England acknowledged that because of the government’s recent Energy Price Guarantee, inflation is now likely to fall below the 11% previously expected in October 2022.
In an attempt to curb inflation, central bank around the world are adopting similar measures to the British Bank. Yesterday, the US Federal Reserve raised interest rates by 0.75 percent for the third consecutive month.
As the country attempts to combat its own inflation problems, the Swiss Central Bank raised interest rates by 0.75% this morning. It did so at a lower level of 3.5%. The European era of negative interest rates has ended with the Swiss central bank’s move.
Today’s meeting by the Bank of England was postponed by one week in light of the period of national mourning. The Committee was briefed by Bank staff about recent economic and financial developments ahead of the rescheduled meeting. This was to support its deliberations.
