The Bank of England’s monetary policy committee (MPC) has increased UK interest rates by 0.5% at lunchtime, raising rates to 2.25%.
Five members of the MPC voted to raise interest rates by 0.5%, with three members in favor of an increase of 0.75%, and one member in favor of an increase of 0.25%. Before the meeting, there was speculation that the MPC could opt for the higher increase of 0.75%.
Today’s rise follows a pattern of interest rate rises throughout 2022, with rates having risen from a low of 0.1% in 2020. A further rise in interest rates is expected later in the year with market analysts predicting interest rates of almost 3 % by the end of 2022.
With every 0.25% rise in interest rates said to add £15 a month to the average monthly repayment for someone on a variable rate mortgage, today’s announcement adds to the cost of living pressures facing many UK households at the moment.
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A continued rise in interest rates is driven by the Bank of England’s efforts to reduce inflation. UK inflation is currently trending at 9.9%, which is much higher than the 2% target that the Bank of England is responsible for.
In the notes accompanying today’s announcement, the Bank of England acknowledged that due to the government’s recent Energy Price Guarantee, inflation is now likely to fall below the 11% previously expected in October 2022.
Central banks around the world are taking measures similar to the British bank as part of their efforts to curb inflation. Yesterday the US Federal Reserve increased interest rates by 0.75% for the third consecutive month.
This morning the Swiss central bank also increased interest rates by 0.75%, as the country works to tackle its own inflation problems, albeit at the much lower level of 3.5%. The move by the Swiss central bank, which used to operate a negative interest rate, has now finally ended the era of negative interest rates in Europe.
Today’s meeting by the Bank of England was postponed for a week in view of the period of national mourning. Before the rearranged meeting, in order to support its discussions, the financial policy committee received a further briefing session from the Bank’s staff on recent economic and financial developments.