The Bank of England raised its benchmark rate by half-a-percentage point on Thursday given the more persistent inflationary pressures and the tight labor market conditions.
The monetary policy committee of the central bank voted 8-1 to lift the bank rate by 50 basis points to 1.75 percent, the highest rate since December 2008. This was the sixth consecutive rate hike.
Governor Andrew Bailey and seven other members preferred 50 basis point increase, while Silvana Tenreyro sought a quarter point hike.
Tenreyro observed that the bank rate might already have reached the level consistent with returning inflation to the 2 percent target in the medium term.
Most members said a 0.5 percentage point increase in interest rate was warranted at this meeting. For these members, a more forceful policy action was justified.
A majority of members assessed that a faster pace of policy tightening at this meeting would help to bring inflation back to the 2 percent target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening cycle later.
The MPC said the policy was not on a pre-set path. The scale, pace and timing of any further changes in Bank Rate would reflect the Committee’s assessment of the economic outlook and inflationary pressures.
The BoE raised its inflation outlook largely due to the surge in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe.
Consumer price inflation was expected to rise more than forecast in the May Report. Inflation is projected to peak just over 13 percent in the fourth quarter of 2022, and to remain at very elevated levels throughout much of 2023, before falling to the 2 percent target two years ahead.
The bank forecast the economy to grow 0.4 percent in the third quarter, slightly weaker than had been incorporated in the May Report.
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