The Bank of England voted Thursday to raise lending rates from 4% to 4.25% as it tries to reach its target inflation rate of 2%. Photo by Andy Rain/EPA-EFE
March 23 (UPI) -- Following its peer economies, the Bank of England on Thursday opted for a 0.25 percentage point increase in its rates despite lingering concerns about the health of the global financial sector.
By a vote of 7-2, the bank opted to raise lending rates from 4% to 4.25% as it tries to reach its target inflation rate of 2% "in a way that helps to sustain growth and employment."
On growth, the bank said it expected gross domestic product in the nation's economy to increase slightly, bucking last month's forecast for a 0.4% contraction. But inflation remains stubbornly high. After falling to 10.1% over the 12-month period ending in January, inflation climbed another 0.3% last month, higher than the bank expected.
The bank noted that "food and core goods price inflation have been significantly stronger than projected."
Core inflation remains elevated, but there's some relief in the form of crude oil and natural gas prices. A well-stocked market and a mild winter brought Dutch TTF natural gas prices, a regional benchmark, down from $72 per megawatt hour at the start of the year to $39 in today's market.
The price for Brent crude oil, the global benchmark, started the year at $82.10 per barrel, but is now down to $76.97, with recent downturns attributed to banking concerns.
The bank said there could still be some broader impacts on the financial sector following the collapse of Silicon Valley Bank in California and the Swiss National Bank takeover of troubled Credit Suisse.
The bank's Monetary Policy Committee said it "will continue to monitor closely any effects on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook."
The Bank of England mirrored the rate hike from the U.S. Federal Reserve, which hiked its rate from 4.75% to 5% on Wednesday. Federal Reserve Chairman Jerome Powell said that while the recent banking concerns did not deter a 10th consecutive rate hike, it has given the committee some pause about how it will approach future increases.
Powell said the recent bank system failures are likely to result in a level of credit tightening that would have a similar effect on the economy as an interest rate hike.
"It is too soon to determine the extent of these effects and therefore too soon to tell how monetary policy shall respond," Powell said.
Markets were mixed on Thursday, with the FTSE 100 in London down 0.82% and the Dow in New York up by 0.75% as of 9:45 a.m. EDT. Crude oil prices were in the black, though gas prices were in retreat early in the U.S. trading session.