Bank says inflation has peaked but raises interest rates and warns there may be more rises to come
ITV News Business and Economics Editor Joel Hills explains the significance of the Bank of England raising interest rates to their highest level for 14 years
The Bank of England believes the headline rate of inflation has reached its peak and that the UK is the early stages of a prolonged recession, and its Monetary Policy Committee (MPC) has also decided that it needs to push down harder on what demand there is in the economy.
Raising interest rates will take money out of the pockets of millions of borrowers, intensifying the already painful squeeze on living standards.
Today’s 0.5% increase adds £49 to the monthly repayment of the average tracker mortgage - a mortgage which has already seen monthly repayments rise by £284 during the course of 2022.
Those who are fortunate enough to have money in the bank will undoubtedly rejoice but for many households and businesses, this will be a deeply unpopular decision.
The housing market has already started to curdle. 2023 will not be an easy year to be an estate agent.
Once upon a time, the Bank promised interest rate rises, when they happened, would be “gradual” and “limited”. Heaving Bank Rate up from 0.1% to 3.5% in the space of a year is neither of those things.
The Bank feels it has no choice. Rampant inflation needs to be brought down to its 2% target. A stitch in time saves nine.
Amid a winter of industrial discontent, it's wage growth that has unsettled the Monetary Policy Committee (MPC).
Pay in the private sector isn’t rising strongly enough (6.9%) to keep pace with runaway consumer prices (10.7%) but the Bank worries it does have enough momentum to risk triggering another wave of inflation.Not least because the economy isn’t slowing as quickly as the MPC was expecting. There remain broadly as many vacancies in the UK as there are job-seekers.
“The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response,” decides the MPC in its minutes.
The “majority” of the committee are also of the view that “further increases in Bank Rate may be required for a sustainable return of inflation to target”.
This decision split the MPC. Six members supported the 0.5% hike, three members voted against - two preferring a pause for breath and one backing a 0.75% increase.
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