Bank of England Governor Andrew Bailey announcing a sharp rise in interest rates to 5% on Thursday warned that high inflation meant that if the central bank did not raise rates now, it could be worse later. File photo by Bonnie Cash/UPI |
License PhotoJune 22 (UPI) — Britain’s central bank announced a sharp rise in interest rates Thursday in an escalation of its 18-month-long battle against soaring prices triggered by the re-opening of the economy following COVID-19 and Russia’s invasion of Ukraine.
The Bank of England’s monetary policy committee voted by a majority of 7-2 to hike the Bank Rate by 50 basis points to 5%, the highest level since September 2008, due to persistently high services inflation and stronger than expected wages growth, the bank said in a news release.
The rise was the 13th consecutive increase in a cycle that began in December 2021 with the two dissenting members of the committee arguing that the rate should be held unchanged at 4.5% despite the latest inflation report showing consumer price inflation remained stubbornly high and core inflation was on the rise.
“The economy is doing better than expected, but inflation is still too high and we’ve got to deal with it, said BoE Governor Andrew Bailey.
“We know this is hard — many people with mortgages or loans will be understandably worried about what this means for them. But if we don’t raise rates now, it could be worse later.”
The bank said it would not waver from its remit to sustainably return inflation to its 2% target over the medium term warning that this could necessitate further rates hikes to at least 5.5%.
Sharp rises in short-maturity government bond yield meant the market-implied path for Bank Rate over the next three years had risen to around 5.5%, from 4% when the MPC last met on May 11.
“The MPC recognizes that the second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge, said the bank.
“There has been significant upside news in recent data that indicates more persistence in the inflation process, against the background of a tight labor market and continued resilience in demand.”
The Labor opposition’s shadow chancellor Rachel Reeves said the rise in interest rates was extremely worrying for families, especially those with mortgages.
“Families will be desperately worried about what this means for them. They want to know support is there if they need it,” Reeves said in a Twitter post.
“Labor’s five-point plan to help ease the Tory mortgage penalty would provide practical help now.
The proposed measures include instructing lenders to help customers by switching them to interest-only mortgages, extending their mortgage term and halting repossessions for six months.
But Reeves ruled out Labor providing direct financial support for people with mortgages were it to win the next election saying large amounts of “untargeted fiscal support from the government” was not the right response”.
