- Advertisement -spot_img
34.3 C
Lagos
HomeWorldBank of England raises interest rates to 0.75%, highest since Covid

Bank of England raises interest rates to 0.75%, highest since Covid

- Advertisement -spot_img

The  Bank of England on Thursday raised interest rates again amid fears inflation could reach double-digits this year – and warned that the standoff with Russia will hammer the economy.

Families are facing more mortgage pain after the Monetary Policy Committee (MPC) lifted the base rate from 0.5 percent to 0.75 percent as it tries to deal with spiking price rises.

The MPC voted by eight to one in favour of the increase, to the highest level since Covid struck. One member wanted to keep rates on hold, in a turnaround from last month when a significant minority want to be more aggressive with rises.

The Bank admitted that inflation looks likely to sail past its prediction of a 7.25 percent peak, potentially by several percentage points, in the wake of the Ukraine war.

However, while the Bank’s main remit is to control inflation, the global nature of the problems means the lever of interest rates might only have a marginal effect.

UK plc is already expected to suffer a severe slowdown with anxiety that it could even slip into recession amid soaring prices – the dreaded ‘stagflation’ scenario.

The Bank had already hiked rates twice in the past three months, with the latest quarter point rise in early February accompanied by warnings of more to come.

But Russia’s invasion of Ukraine has seen financial markets trim their expectations for rate rises this year, with central banks in the UK and worldwide predicted to tread more carefully.

Most economists expected a 0.25 per cent increase, with the case for action having been reinforced after official data on Tuesday showed a roaring UK jobs market.

But the MPC shied off voting for a larger rise as it faces the prospect of a stalling economy.

The MPC said that UK GDP in January was stronger than it predicted last month but stressed that growth is ‘likely to slow’ due to the fallout from Ukraine.

READ ALSO: Nigeria on course to restore electricity capacity to more than 4,000 MW soon, says NERC

The ONS said last month that Consumer Price Inflation increased by 5.5 percent in January and the central bank previously said it could peak at 7.25 percent, but it has now warned it is likely to rise more sharply.

In the latest report, the Bank said: “Inflation is expected to increase further in coming months, to around 8 percent in Q2 2022, and perhaps even higher later this year.

“The projected overshoot of inflation relative to the 2 percent target to an increasing extent reflects global energy prices, with some further material contribution from tradable goods prices.’

“There are fears growth may come under pressure in the second quarter and beyond as the cost of living crisis and conflict in Ukraine weigh on confidence.”

In a grim warning, the MPC added: “Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow.”

Senior investment and markets analyst, Susannah Streeter said: “The double whammy is that these super high prices affecting oil, metals and grains may be hard to bear for companies and consumers, leading to less spending and investment and could push the recovery into reverse.”

Bank governor Andrew Bailey has admitted there is little monetary policy can do to influence global commodity prices, but said on raising rates in February that cost pressures ‘would be even worse’ if it did not take action.

The EY Item Club believes the Bank will pause after rates reach 1 percent this year.

Its chief economic adviser, Martin Beck, said: “The nature of the shock from soaring energy and commodity prices which has struck the UK economy following Russia’s invasion of Ukraine puts the MPC in a very difficult position.

“As Governor Andrew Bailey has stressed, there is nothing UK monetary policy can do to increase the supply of gas and other commodities.

“And changes in interest rates take 12-18 months to have their peak effect so hikes now may kick in at a point when base effects and falling energy prices mean inflation has fallen back sharply.”

Join Our Mailing List!

* indicates required
- Advertisement -spot_img
- Advertisement -spot_img
Must Read
Related News
- Advertisement -spot_img