Bank of England raises interest rates to 13-year high, expects inflation to reach 10%

BoE Governor Andrew Bailey warned that the bank is on a “narrow path” between growth and inflation.

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LONDON – IN Bank of England On Thursday, it raised interest rates to their highest level in 13 years in an attempt to tackle spiraling inflation.

In a widely expected move, Bank of England policymakers voted to raise interest rates for the fourth consecutive time since December at a time when millions of UK households struggle with the rising cost of living.

The Bank’s Monetary Policy Committee approved a 25 basis point increase by a 6-3 majority, while raising the policy rate to 1%. The bank said minority members favor an interest rate increase of 0.5 percentage point to 1.25%.

Like many central banks around the world, the Bank of England is tasked with steering the economy through increased inflation exacerbated by Russia’s unprovoked attack on Ukraine.

UK annual inflation hit a 30-year high of 7% in March – More than triple the target level of the Bank of England – as food and energy prices continue to rise. Meanwhile, UK consumer confidence fell to a record low in April amid fears of slowing economic growth.

The bank expects UK inflation to rise to nearly 10% this year as a result of the Russia-Ukrainian war and lockdowns in China. It also warned that prices are likely to rise faster than income for many people, deepening the cost of living crisis.

Former Bank of England Governor Andrew Bailey warned that the bank is on a “narrow path” between growth and inflation – and implied that the bank might look to take a more gradual approach to tightening rather than follow the US Federal Reserve with a 50 basis point hike.

US central bank on Wednesday Raised the benchmark interest rate to a target rate range of 0.75% to 1%. It was the Fed’s biggest rate hike in two decades and the biggest step it has taken so far in its battle against high inflation in 40 years.

Sterling pound It fell 1.2% to $1.2468 shortly after the interest rate decision. The British currency erased gains from the previous session, falling towards its lowest level since July last year.