The Bank of England (BoE) has raised interest rates to their highest level since 2009, the fourth time it has taken action since December.
The new 1% interest rate of 0.75% is the BoE’s latest attempt to curb rising inflation – also at its 30-year high – fueled by rising fuel and energy costs. This is further complicated by the current war in Ukraine.
The BoE warned that this had led to a “significant deterioration” in the growth prospects of the world and the United Kingdom. These developments have significantly exacerbated the combination of adverse supply shocks that the United Kingdom and other countries continue to face.
In addition, its central forecast for the May report states that CPI inflation is expected to rise further during the rest of the year, to just over 9% in the second quarter of 2022 and averaging just over 10% at its peak. in the fourth quarter of 2022
However, the UK’s GDP is said to have risen 0.9% in the first quarter of 2022, stronger than expected in the February monetary policy report.
In a statement issued today, the Bank of England said: “The economy has recently been the subject of a series of major shocks. Russia’s invasion of Ukraine is another such shock. In particular, if recent developments prove sustainable, as central forecasts suggest, much higher levels of world energy and tradable goods, of which the United Kingdom is a net importer, will inevitably weigh further on the real incomes of most UK households and many of the UK’s profit margins of companies.
“This is something that monetary policy cannot prevent. The role of monetary policy is to ensure that when this real economic adjustment occurs, it does so in a way that is compatible with the 2% inflation target sustainably in the medium term, while minimizing unwanted volatility in production.