‘Further forceful response’: Bank of England raises interest rates to highest in 14 yearsDecember 15, 2022
- Bank of England raises rates to 3.5 per cent, expects more rises to come.
- Ninth rate rise in row as bank tries to slow inflation after 41-year high.
- The BoE expect “inflation to start falling more rapidly probably from the late spring”.
- Central banks are grappling with post-COVID labour shortages and rising energy prices.
London: The Bank of England has raised interest rates to the highest level in 14 years, taking the cost of borrowing to 3.5 per cent while warning that further rises were likely despite the economy slightly improving.
Officials at the central bank voted to increase interest rates by half a percentage point – a ninth successive increase – in a bid to control spiralling inflation, which has plunged British households and businesses into a cost of living crisis.
Shoppers on Oxford Street walk past a sale sign in a shop window after the Bank of England has raised its key Base Rate again.Credit:AP
Rates have now risen by 3.4 points since their low of 0.1 per cent last December in the most aggressive set of hikes since 1989.
In a sign that the Bank was slowing the pace of increases as economic activity lags, the latest rate rise, which is in line with investors’ expectations, is smaller than the 0.75-point increase implemented in November.
The European Central Bank also announced an increase in its deposit rate from 1.5 per cent to 2 per cent, its highest level since the global financial crisis in 2008, and signalled that it would increase borrowing costs repeatedly by half a point in the coming months.
Governor of the Bank of England Andrew Bailey.Credit:Bloomberg
The US Federal Reserve and the Swiss National Bank both raised its benchmark rate by 0.5 percentage points on Wednesday as Western central banks grapple with post-COVID labour shortages and the impact of Russia’s invasion of Ukraine on energy prices.
Bank of England Governor Andrew Bailey said on Thursday that there were signs inflation was now beginning to come down from its 41-year-high, but that the bank had still needed to raise rates to offset pressures from a tight labour market.
“We think we’ve seen possibly this week the first glimmer, with the figures released this week, that it’s not only beginning to come down but it is a little bit below where we thought it would be and that is obviously very good news but there is a long way to go,” he said.
“We expect inflation to start falling more rapidly probably from the late spring onwards. But there is a risk that it won’t happen in that way, particularly because the labour market and the labour supply in this country is so tight.”
Bailey said that such factors justified “a further forceful monetary policy response”.
The annual rate of consumer price inflation dropped to 10.7 per cent in November from 11.1 per cent in October, the Office for National Statistics (ONS) said, a bigger fall than the decline to 10.9 per cent which economists had forecast.
Economists said the drop in core inflation — excluding energy, food, alcohol and tobacco — from 6.5 per cent in October to 6.3 per cent in November was a further positive sign that underlying price pressures were moderating.
The United States and the eurozone have also reported larger-than-expected drops in inflation for November.
The Bank of England raised interest rates for a ninth successive time, to a 14-year-high.Credit:AP
Inflation in Britain is higher than in the United States or the eurozone as a whole, though below that of Germany.
The UK economy rebounded by more than expected in October, amid a resurgence in car sales and construction, but the broader trend was of falling output and a likely prolonged recession.
Gross domestic product grew 0.5 per cent between September and October, according to data published by the Office for National Statistics earlier this week.
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