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Home Economics

Bank of England raises interest rates to an all-time high in thirteen years

Rate Captain by Rate Captain
May 5, 2022
in Economics, Money Market, Uncategorized
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Bank of England raises interest rates to an all-time high in thirteen years
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The Bank of England has hiked the interest rate to 1%, the highest level in thirteen years, in a bid to curb the rising inflation rate in the country.

This was disclosed today in a monetary policy summary released after the committee voted by a majority of 6 votes to 3 to raise rates by 0.25 percent. With the three dissenting MPC members wanting a bigger 0.50 percent rise.

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The Bank’s interest rate is now at its highest since March 2009, after the recession that followed the global financial crisis sent the cost of borrowing tumbling to emergency lows to keep the global economy afloat.

What was contained in the Monetary Policy Summary released!

At the end of the MPC meeting today, 5 May 2022, the BoE stated that “The MPC voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 1.25%.”

The bank added that its aggressive stance to combat the inflation hike would be accompanied by the selling of UK bonds. The BoE said, “As Bank Rate is now being increased to 1%, and consistent with the MPC’s previous guidance, the Committee will consider beginning the process of selling UK government bonds held in the Asset Purchase Facility.”

The report added, “The Committee’s updated central projections for activity and inflation are set out in the accompanying May Monetary Policy Report. The projections are conditioned on a market-implied path for Bank Rate that rises to around 2½% by mid-2023, before falling to 2% at the end of the forecast period”

Governor of the Bank of England, Andrew Bailey said at the press conference that most members of the MPC “judge some further tightening of monetary policy might be appropriate” and the uncertain outlook led to a range of oversight on the committee.

 Keynotes

  • According to the BoE, UK GDP is estimated to have risen by 0.9% in 2022 Q1. The While unemployment rate fell to 3.8% in the same quarter and is likely to fall slightly further in the coming months.
  • UK inflation climbed to 7.0% in March, which was more than the forecast in the February report and when compared to the benchmark rate of 2% proposed by the Fed. This hike in the inflation rate is owing to a past surge in global energy and tradable goods prices, resulting from the Russian-Ukraine war.
  • The bank predicts that the inflation rate will grow further during the rest of the year, peaking at just over 9% in 2022 Q2 and averaging just over 10% in 2022 Q4.
  • The bank also projects that the unemployment rate is likely to fall slightly further in the near term.

 

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