The Bank of England today put interest rates up to 0.5% and seems set to rise them again at least three times more this year.
The Monetary Policy Committee voted 5 to 4 to double the UK’s interest rate in the first back-to-back rate rise since 2004.
The MPC said in a statement: “Given the current tightness of the labour market and continuing signs of greater persistence in domestic cost and price pressures, the Committee judges that an increase in Bank Rate of 0.25 percentage points is warranted at this meeting.”
Rates were at 0.25% before today and are forecast to reach 1.5% by next summer.
It was a close call that rates didn’t go even higher today.
Four members of the nine-strong Monetary Policy Committee today voted for a higher rate rise however, a sign of how worried they are about price rises.
Jon Haskel, Catherine Mann, Dave Ramsden and Michael Saunders wanted rates to go to 0.75% immediately.
The MPC is becoming increasingly hawkish as inflation continues to spiral higher. The Bank of England was today forced to increase its forecast for peak inflation to 7.25%.
Ed Monk at Fidelity International said: “Today has laid bare the economic squeeze on households - 2022 is shaping up to be a really difficult year. The Bank’s decision to raise rates for the second MPC meeting in a row indicates how seriously it takes the threat of inflation widening out.
“Many causes of the price rises we’re seeing are supply-driven and difficult for any central bank to bring under control, but rate-setters clearly believe the inflation is also being driven by demand factors too. With GDP only just having recovered the ground lost in the pandemic, it’s sobering to think that steam must now be taken out of the economy.”
The Bank of England cuts its forecast for UK GDP growth this year, downgrading its expectation from 5% to 3.75%.
Laura O’Sullivan at Accenture UK and Ireland said: “Consumers will have mixed emotions about this second rate rise in less than two months. While some may welcome the potential for higher returns on their savings and for inflation to be reined in, others will be deeply concerned about how it will impact their mortgage repayments.”
Alongside the rate hike, the Bank said it will begin shrinking its own balance sheet -- slowly reversing the £895 billion of quantitative easing that it on its books.
It will allow more than £200 billion of this to run off by 2025.
