The Bank of England on Thursday hiked its main interest rate to its pre-pandemic level of 0.75 percent, the third increase in a row, to combat decades-high inflation
The BoE decision came one day after the US Federal Reserve carried out the first of what is expected to be a number of rate hikes this year to tackle runaway inflation.
The UK central bank said the country’s annual inflation rate could top 8.0 percent this year, as the Ukraine war fuels already sky-high prices for oil, gas and other commodities.
It had previously forecast the inflation rate to peak at 7.25 percent in April.
The BoE even warned that, should wholesale energy prices continue to soar, inflation could potentially be “several percentage points higher” than the prior estimate.
Eight members of the bank’s nine-strong Monetary Policy Committee, including governor Andrew Bailey, voted to lift its key rate by a quarter point to 0.75 percent.
Policymaker Jon Cunliffe voted to maintain rates at 0.5 percent, citing worries over the soaring cost of living.
– Ukraine fallout –
“Regarding inflation, the invasion of Ukraine by Russia has led to further large increases in energy and other commodity prices including food prices,” the BoE said in a statement.
“It is also likely to exacerbate global supply chain disruptions, and has increased the uncertainty around the economic outlook significantly.”
The bank said global inflationary pressures would “strengthen considerably further” over the coming months, meaning that net energy importers including Britain would likely experience slowing growth.
Alpesh Paleja, economist at business lobby group the CBI, said the BoE “will be walking a tightrope in the months ahead, having to both keep price pressures in-check and manage the impact of tighter monetary policy on economic growth — particularly against a background of rising living costs”.
The latest official data showed that UK annual inflation hit 5.5 percent in January, the highest level since 1992.
Inflation is rocketing around the world also as economies reopen from the pandemic.
The Fed on Wednesday announced a quarter-point rate hike, the first since it slashed its rate to zero at the start of the Covid-19 crisis.
“Like the US Federal Reserve, the bank is signalling an unyielding approach in the face of surging inflation,” said Deloitte chief economist Ian Stewart.
“That points to further increases in interest rates on both sides of the Atlantic in the next 12 months, and to weaker growth.”
The European Central Bank last week “significantly” lifted its inflation forecasts for the eurozone on sky-high energy prices and uncertainty over the war in Ukraine.
The ECB sees inflation climbing to 5.1 percent this year.
Such predictions have added to fears of stagflation, or a combination of high costs and unemployment alongside slowing economic growth.
