HomeWorldThe Bank of England raises interest rates again as inflation approaches 11%

The Bank of England raises interest rates again as inflation approaches 11%

The Bank of England said on Thursday it would raise the cost of borrowing by 25 basis points to 1.25% despite fears that skyrocketing prices are already hitting households and weighing on economic growth.

“Bank staff now expect GDP to fall 0.3% in the second quarter as a whole, weaker than forecast in the May Report,” the Bank of England said in a statement.

“Consumer confidence has fallen further, but other indicators of household spending seem to have held up. Some indicators of business sentiment have weakened, although they have so far remained more resilient than indicators of consumer confidence and consistent with positive underlying GDP growth,” he said. additional.

The central bank said three members of its Monetary Policy Committee wanted to raise rates by 50 basis points to 1.5%, which would have been the biggest increase in 27 years, but the other six rejected them.

Skyrocketing food and fuel prices have plunged millions of Britons into The worst cost of living crisis in decades. Annual consumer price inflation rose to 9% in April, its highest since 1992. The Bank of England now expects inflation to rise slightly above 11% in October.
Food research firm IDF said in a report on Thursday that the price of groceries increases could exceed 15% during the summer. Export bans on key goods, including indonesian palm oiland the war in Ukraine, which has limited the region’s exports, are among the factors that have stoked food inflation, according to the report.

The UK economy is in a bleak place. GDP contracted 0.3% in April, after a 0.1% drop in March, according to data from the National Statistics Office. Output fell in all three main sectors (services, manufacturing and construction) for the first time since January last year.

The Bank of England’s decision comes a day after the US decision. The Federal Reserve raised rates at 75 basis points to control inflation. That’s the Fed’s biggest hike since 1994.

George Buckley, chief UK and Europe economist at Nomura, told CNN Business it was “understandable” that the Bank of England decided on a more modest rate hike than its US counterpart.

“The Bank of England [thinks] that high inflation today, by itself, will hurt growth and ultimately reduce future inflation,” Buckley said.

“The bank is dealing with rising inflation, but at the same time with recession risk, so the differences of opinion in the Committee at this time on the scale of adjustment required is understandable,” he added.

Nicole Goodkind contributed to this report.

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