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UK interest rates. Decision of the Bank of England

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The Bank of England (BoE) unexpectedly raised its key interest rate on Thursday not by 0.25 percentage points as widely expected, but by 0.5 percentage points, bringing it now to 5 percent, its highest level since 2008 . The bank suggested that further hikes are possible.

It was the 13th consecutive meeting of the Monetary Policy Committee (MPC) at which it was decided to bear interest rates. The very fact that there would be an increase was certain, especially after the ONS announced the day before that the annual inflation in May it did not fall as expected, but was the same as in April, i.e. it amounted to 8.7 percent. However, analysts had expected the MPC to continue raising rates by 0.25%.

Decision of the Bank of England

However, in the minutes accompanying the decision, the bank said higher inflation, especially in services, meant it had to act faster to bring prices under control. Inflation is more than four times higher than the BoE’s inflation target of 2%.

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“There are significant messages in recent data pointing to a more persistent inflation process in the context of a tight labor market and continued resilience of demand,” it said. In favor of raising the main interest rate by 0.5 percentage point. Seven out of nine MPC members voted, the other two voted for leaving them at the current level of 4.5 percent.

The bank explained that it expects inflation to fall significantly towards the end of the year, but cautioned that “if there is evidence of more persistent (inflationary) pressures, a further tightening of monetary policy will be necessary.”

Possible further increases

Inflation in the UK is higher than in the rest of the G7 countries and interest rates are also expected to reach higher levels than in other most developed economies. Analysts expect the Bank England will continue to raise interest rates in the coming months, which should reach 6 percent at the turn of this year and next year. The next MPC meeting will be held on August 3.

However, rising interest rates mean higher costs of loans, especially mortgage loans. The British media are increasingly talking about the fact that the inability of a growing number of people to repay their loans heralds another impending crisis in the economy.

Main photo source: EPA/ANDY RAIN



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