The bank of England (BoE) has raised interest rates to its highest level since 2009 – marking the fourth time it has taken action since December.
The new rate of 1%, up from 0.75%, is the BoE’s latest attempt to curb the rampant rise in inflation – also at its highest rate in 30 years – fueled by the rise in fuel and energy costs. The has also been compounded by the current war in Ukraine.
The BoE warned that this has led to a “material deterioration” in the outlook for world and UK growth. These developments have exacerbated greatly the combination of adverse supply shocks that the United Kingdom and other countries continue to face.
In addition, in its May Report central projection, it said CPI inflation is expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4.
Despite this, it said UK GDP is estimated to have risen by 0.9% in 2022 Q1, stronger than expected in the February Monetary Policy Report.
In a statement released today, the Bank of England said: “The economy has recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine is another such shock. In particular, should recent movements prove persistent as the central projections assume, the very elevated levels of global energy and tradable goods prices, of which the United Kingdom is a net importer, will necessarily weigh further on most UK households’ real incomes and many UK companies’ profit margins.
“This is something monetary policy is unable to prevent. The role of monetary policy is to ensure that, as this real economic adjustment occurs, it does so in a manner consistent with achieving the 2% inflation target sustainably in the medium term, while minimising undesirable volatility in output.”