The Bank of England has raised this Thursday from 0.5% to 0.75% interest rates in the United Kingdom. It is the third rise in just four months by the entity to contain inflation in the United Kingdom, currently at 5.5%, well above the 2% target set by the institution. With the increase announced after the monetary policy committee meeting, interest rates are now at their highest level since March 2020, when the coronavirus pandemic broke out.
The rate hike comes at a time when energy prices and food costs are climbing nationally and globally, while there are concerns that the war in Ukraine will push them further. To justify the measure, the regulator’s monetary policy committee has pointed out that, although last January the rise in Gross Domestic Product (GDP) was stronger than expected, the growth of the British economy “is probably slowing down” due to the pressures caused by the war escalation.
Only one of the nine members of the committee has voted against the increase, citing fears about the impact of the cost of living on the growth of the national economy. “The effects of Russia’s invasion of Ukraine will likely accentuate both a rebound in inflation and the adverse impact on activity, intensifying pressures on household income,” warns the Bank of England in its latest report. This document also warns about the blow to household finances caused by high energy costs —and its consequent effect on economic activity—. An impact that will be greater than initially feared.
The British regulator says that the impact suffered by the economy due to energy prices and the Russian invasion is “something that monetary policy was unable to prevent”. Last month, the UK Office for National Statistics (ONS) indicated that the rate of inflation rose by 5.5% in January, while the Bank had previously signaled that it could pick up to to 7.25% and now warns that this increase could be even more pronounced. Inflation is expected to rise further in the coming months, to around 8% in 2022, and perhaps even higher by the end of this year.
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