LONDON, ENGLAND – FEBRUARY 03: Governor of the Bank of England Andrew Bailey leaves after a press conference at the Bank of England on February 3, 2022 in London, England.
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LONDON – The Bank of England on Thursday raised interest rates for the third consecutive meeting as the Russia-Ukraine conflict is expected to keep inflation higher for longer.
The Bank’s Monetary Policy Committee voted 8-1 in favor of a further 0.25 percentage point hike to its main Bank Rate, taking it to 0.75%.
UK inflation was already running at a 30-year high prior to Russia’s Invasion of Ukraine, which sent energy prices surging and will exert more upward pressure on the central bank’s inflation projections.
At its last meeting in February, the Monetary Policy Committee imposed back-to-back interest rate hikes for the first time since 2004 and upped its forecast for inflation to a 7.25% Peak in April, against a backdrop of strong growth and a robust labor market in the UK
The Bank said at the time that any further tightening of monetary policy would depend on the medium-term prospects for inflation, which were then propelled upward by Moscow’s Assault on Ukraine and subsequent threats to energy supply.
“Global inflationary pressures will strengthen significantly further over the coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow,” the Bank said in Thursday’s report.
The Bank now expects inflation to increase further in the coming months to around 8% in the second quarter of 2022, and perhaps even higher later in the year.
Given the tightness of the labor market and persistent domestic cost and price pressures, the MPC also said that “some further modest tightening in monetary policy may be appropriate in the coming months,” although the risks are two-sided depending on the development of the medium -term inflation prospects.
Sterling retreated following the announcement, shedding 0.3% against the dollar, while the euro gained around 0.5% against the pound.