The Bank of England’s monetary policy committee (MPC) has this lunchtime increased UK interest rates by 0.5%, taking rates to 2.25%.
Five members of the MPC voted to increase interest rates by 0.5%, with three members favouring a 0.75% increase, and one member favouring a 0.25% increase. Before the meeting, there had been speculation, that the MPC might opt for the higher 0.75% increase.
Today’s rise follows a pattern of interest rate increases throughout 2022, with rates having risen from a low point of 0.1% in 2020. Further interest rate rises are expected later in the year with market analysts anticipating interest rates of close to 3% by the end of 2022.
With each 0.25% rise in interest rates said to add £15 per month to the average monthly repayment for someone on a variable rate mortgage, today’s announcement adds to the cost of living pressures currently facing many UK households.
Ongoing interest rate rises are driven by the Bank of England’s efforts to drive down inflation. UK inflation is currently trending at 9.9%, well in excess of the 2% target for which the Bank of England is responsible.
In the notes accompanying today’s announcement, the Bank of England acknowledged that because of the government’s recent Energy Price Guarantee, inflation is now likely to fall below the 11% previously expected in October 2022.
Central banks around the world are taking similar measures to the British bank as part of their attempts to curb inflation. Yesterday the US Federal Reserve increased interest rates by 0.75% for the third month in a row.
This morning the Swiss central bank also increased interest rates by 0.75%, as the country works to tackle its own inflation problems, albeit at the far lower level of 3.5%. The move by the Swiss central bank, which previously operated a negative interest rate, has now finally brought to a close the era of negative interest rates in Europe.
Today’s meeting by the Bank of England was postponed by one week in light of the period of national mourning. Ahead of the rescheduled meeting, in order to support its deliberations, the monetary policy committee received a further briefing from Bank staff on recent economic and financial developments.
