Britain’s central bank, the Bank of England, has raised interest rates for the 10th time in a row, raising the base rate from 3.5% to 4% in an effort to keep double-digit inflation down.
Seven members of the bank’s Monetary Policy Committee (MPC) voted in favor of raising rates, while two voted to keep them on hold.
“Evidence of more sustained pressure would likely require further tightening of monetary policy,” the MPC warned.
However, it refrained from claiming that the Commission would respond “vigorously” to these pressures, as it had said at a previous meeting.
The central bank forecast a fifth straight quarter of recession from the current quarter through the first quarter of 2024, with gross domestic product (GDP) declining 0.5% this year.
The recession is expected to reduce peak-to-trough GDP by 1%, compared to a 3% decline in previous projections.
Inflation “bend”
“We have seen the first signs that inflation has reached its limit,” Bank of England Governor Andrew Bailey said at a press conference after the rate decision.
he said:
“This is below the level we expected in our November report and we believe it will continue to decline this year and decline even more rapidly in the second half of the year.
“This has a lot to do with energy prices. ”
Governor Bailey said consumer price index (CPI) inflation is expected to remain below the banks’ 2% interest rate target in spring 2024 as long as energy prices fall as expected.
But he said it was “premature” to declare victory over inflation because “inflationary pressures are still present.”
“The extent to which inflationary pressures ease will depend on economic developments and the impact of previous significant increases in bank rates.”
“Evidence of more sustained pressure would require further tightening of monetary policy,” he added.
“Biggest Threat”
Chancellor Jeremy Hunt said he supports the Bank of England’s decision to raise interest rates.
“Inflation is a stealth tax and the greatest threat to living standards for a generation, so we support the actions of banks today as they succeed in halving inflation this year,” he said.
“We are doing our part by making sure government decisions are aligned with the banks’ approach. That includes resisting the current urge to fund additional spending and tax cuts through some borrowing. Everyone.”
The official spokesman for Prime Minister Rishi Sunak said: As the Prime Minister said, a healthy currency and a stable economy are the best ways to achieve lower mortgage interest rates and keep the cost of mortgage payments down.
“That is why we are taking the necessary and responsible actions to halve inflation, reduce debt and grow the economy.”
Opposition parties have blamed the Conservative government for the economic situation.
Labour’s shadow prime minister, Rachel Reeves, said the latest interest rate hike would increase the “Conservative mortgage penalty” paid by homeowners.
she said: If Britain has a very good chance of growing and prospering, it need not continue on this path of controlled decline. ”
Liberal Democrat leader Sir Ed Davy said higher interest rates would be a “hammer blow” for families struggling with rising costs of living.
he said: Their utter failure to keep inflation in check has paid the price for homeowners. ”
Firms warn against further rate hikes
Business leaders have expressed concern that interest rates could rise further.
David Vallier, head of research at the British Chamber of Commerce (BCC), said the Bank’s “hard-line approach” to inflation could have “serious side effects”.
“Mortgage holders and businesses that will be dependent on debt to survive after three years of economic shocks will be most affected by today’s decision,” he said.
“Banks expect inflation to slow to about 4% by the end of the year, and further rate hikes could increase the risk of recession and outweigh profits.”
The Federation of Small Businesses (FSB) National President Martin McTug said:
“Rising mortgage and loan costs will further reduce people’s willingness and ability to open their wallets, creating more short-term distress for consumer-facing industries and inevitably impacting other sectors as the situation continues. will give you a
He said the government must “advance the growth agenda” in the next budget. It is scheduled to be announced in six weeks.
PA Media contributed to this report.