1 of 2 | British Prime Minister Rishi Sunak has faced criticism from the opposition for what were seen as soft pledges on taming inflation. The Bank of England on Thursday raised its rates to a 15-year high. File photo by Bonnie Cash/UPI | License Photo
Aug. 3 (UPI) -- The Bank of England hiked its lending rates Thursday by a quarter of a percent to a 15-year high of 5.25% and signaled more may be necessary to bring inflation back to the 2% target rate.
Inflation in the British economy last year hit double-digit territory. Over the 12-month period to June, inflation still stands at 7.9%, far higher than its peer economies and well above the 2% target rate set by the British central bank.
The bank added Thursday that its rates would remain "sufficiently restrictive" until the target rate is reached.
"Some of the risks of more persistent inflationary pressures may have begun to crystallize," it added.
The emphasis on restrictive monetary policy stands in contrast to the U.S. economy,for which policy makers at the Federal Reserve said they'd assess incoming data before making any decisions on future rate moves.
The Fed, nonetheless, increased its lending rate by 25 basis points, or 0.25%, last month.
Like other economies, British central bankers are concerned about wages and labor, which would only incentivize a move higher for inflation by way of increased cash and demand.
"Wage growth was expected to remain strong in the near term, with the risk that there could be further upside surprises," the Bank of England said.
British Prime Minister Rishi Sunak said last month he was committed to lowering consumer-level inflation, but only to a point.
While inflation in Britain remains the highest of the advanced economies, Sunak has only pledged to get it down to half the 11.1% it reached in October 2022, sparking criticism from the opposition Labor Party.
Though trends are running worse than other major economies, the bank's rate hike was less aggressive than the 50 basis-point hike in June.
"Policymakers clearly don't want to come across as complacent though, and there are plenty of references to the upside risks associated with inflation, as well as the recent surprises in wage growth," a research note from investment bank ING read.