This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/2023/mar/23/bank-of-england-raises-uk-interest-rates-inflation

The article has changed 4 times. There is an RSS feed of changes available.

Version 0 Version 1
Bank of England raises UK interest rates by quarter point to 4.25% Bank of England raises UK interest rates by quarter point to 4.25%
(30 minutes later)
Monetary policy committee votes to increase base rate after February’s surprise rise in inflationMonetary policy committee votes to increase base rate after February’s surprise rise in inflation
The Bank of England has raised interest rates by a quarter of a percentage point to 4.25% in response to higher than expected UK inflation. The Bank of England has raised interest rates by a quarter of a percentage point to 4.25% in response to higher than expected UK inflation and signs that Britain’s economy is holding up better than feared.
The Bank’s monetary policy committee (MPC) voted to increase the base rate for an 11th consecutive time, judging that higher borrowing costs are still required to tackle inflation despite gathering storm clouds for the economy. In a fortnight of heightened unease in global financial markets, the Bank’s monetary policy committee (MPC) voted by a majority of seven to two to increase the base rate for the 11th time in a row.
UK rates are now at the highest level since October 2008, just as the global economy was in the grips of the financial crisis. It comes after an unexpected jump in the UK’s annual inflation rate in February to 10.4% from 10.1% in January, fuelled by food prices accelerating at the fastest pace in 45 years. The Bank’s official target for inflation is 2%.
The development comes after the UK’s annual inflation rate unexpectedly rose in February to 10.4% from 10.1% in January, fuelled by soaring food prices. The Bank also said the outlook for the economy is slightly improved and is no longer predicting a technical recession, where the economy shrinks for two consecutive quarters.
The rise in UK inflation – which is at odds with the US and eurozone where headline inflation fell last month – prompted economists to predict Thursday’s move by the Bank of England as it seeks to subdue demand to bring inflation down. Its official target for inflation is 2%. Central banks on both sides of the Atlantic have pushed ahead with rate increases despite fears over the collapse of Silicon Valley Bank and the Swiss-government brokered rescue of Credit Suisse by its rival lender UBS. The US Federal Reserve raised its benchmark interest rate on Wednesday by a quarter of a percentage point to a range of 4.75% to 5%.
However, the rise comes amid heightened concerns over the fallout in global markets from the failure of Silicon Valley Bank and the Swiss government-brokered rescue of Credit Suisse, in a fortnight evoking painful memories of the run-up to the 2008 banking crash. In a move widely anticipated by City traders after the shock UK inflation increase, the MPC said growth in the British economy was holding up better than expected, as the nine-member rate-setting panel pushed up borrowing costs to the highest level since the 2008 banking crash.
The Bank of England’s decision came a day after the US Federal Reserve raised its benchmark interest rate by a quarter of a percentage point to a range of 4.75% to 5%. However, it signalled that inflation was still expected to fall “sharply” over the coming months amid a decline in global energy prices, in a potential sign that the MPC’s most aggressive assault on inflation in its history could be near an end.
In a signal of its future plans, the committee said “if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”.
Threadneedle Street said the UK economy was now expected to grow slightly in the second quarter of the year, after previously forecasting a 0.4% drop in activity, suggesting that the recent sharp fall in global energy prices and extension of government support for gas and electricity bills would help to bolster spending.
In a judgment issued after Jeremy Hunt’s spring budget last week, it said the measures announced by the chancellor could help to increase the size of the economy by about 0.3% over the coming years. The extension of the government’s energy price guarantee, at £2,500 for an average household bill, would help real incomes remain broadly flat, rather than falling significantly.
The extension in the cap is expected to lower inflation by about one percentage point, while freezing fuel duty would contribute a further third of a percentage point drop compared with its previous estimates.
Sign up to Business TodaySign up to Business Today
Get set for the working day – we'll point you to all the business news and analysis you need every morningGet set for the working day – we'll point you to all the business news and analysis you need every morning
after newsletter promotionafter newsletter promotion
More details soon … Economists have warned the turmoil in the global banking system has potential to further weigh on the economy, reducing the need for further interest rate rises at a time when headline inflation is already expected to fall sharply.
Two of the MPC’s external members, Silvana Tenreyro and Swati Dhingra, voted against a rate rise, warning that higher borrowing costs were weighing on the economy in a way that could bring forward the point at which rate cuts would be required.
It comes amid signs that an acceleration in wage growth since the Covid pandemic has juddered to a halt in recent months, despite ongoing signs of labour shortages in several sectors of the economy. Economists have suggested weaker levels of wage growth could reduce the risk of persistently high inflation.
The Bank said it was closely monitoring the economic impact from the failure of SVB and UBS’s takeover of Credit Suisse, and would issue a full assessment in its next update on the economy in May.
The central bank’s financial policy committee said it “judged that the UK banking system maintained robust capital and strong liquidity positions, and was well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates”.