The Bank of England, Britain's central bank, hiked its key Bank Rate by 25 basis point to 4.5% Thursday amid ongoing concerns about double-digit price inflation and rising wages. Photo by Andy Rain/EPA-EFE
LONDON, May 11 (UPI) -- The Bank of England hiked interest rates for the 12th time in a row Thursday to 4.5% despite private sector wage growth and services consumer price inflation that remained within touching distance of expectations.
The bank's monetary policy committee voted 7-2 for the 25 basis-point Bank Rate rise to continue to "address the risk of more persistent strength" in prices and wages indicated by an upward skew in the bank's inflation forecast, Threadneedle Street said in a news release.
Inflation would fall sharply from April down from 10.2% in the first quarter to 5% at the end of the year -- as large price hikes caused by Russia's war in Ukraine drop out of the calculations -- but at a slower pace than expected as record-high food inflation is now unlikely to come down as fast as previously expected.
Gov. Andrew Bailey said the economy would now narrowly avoid a recession the bank had predicted to last through 2024, but warned that "considerable uncertainties" remained around the pace at which CPI inflation will return sustainably to the bank's 2% target.
"The committee continues to judge that the risks around the inflation forecast are skewed significantly to the upside, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices may take longer to unwind than they did to emerge."
The bank warned, however, that its mean CPI inflation profile shows inflation falling materially below the 2% target in 2025 and 2026 as increasing slack in the economy combined with declining external pressures exert downward pressure on prices.
Chancellor Jeremy Hunt expressed satisfaction that the bank believed Britain no longer faced a recession while acknowledging the rate rise was "very disappointing for families with mortgages."
"But unless we tackle rising prices, the cost-of-living crisis will only carry on -- which is why we need to be resolute in sticking to our plan to halve inflation by the end of the year," said Hunt.
However, the Labor Party opposition's shadow chancellor Rachel Reeves said people would be "wracked with anxiety" by the rate rise
"The PM must admit his responsibility for the Tory mortgage penalty leaving so many worse off. We need a proper windfall tax on oil and gas giants now to ease the cost of living," Reeves said in a Twitter post.
The rate rise will mean immediate payment hikes for about two million borrowers with tracker mortgages that track Bank Rate with the typical borrower expected to pay about $30 a month more but savers, on the other hand, will receive more interest on their deposits.
