Bank of England raises interest rates by 0.25%
Base rates in the UK are now 5.25%, their highest in 15 years, after the Bank of England (BoE) pushed interest rates higher by 0.25%. The BoE's Monetary Policy Committee (MPC), the body which sets rates, took note of the continued high level of inflation in June, with prices going up at an annualized 7.9% - almost four times higher than the BoE's 'target'. But the MPC was not unanimously in favor of a higher rate; it voted by six to three to raise the rate, with two members in favor of a bigger rise, of 0.5%, and one member voting for no rise at all.
Prime MInister Rishi Sunak pledged in January that inflation would halve by the end of the year. For that pledge to be true inflation would have to be 5.35% in December. The BoE now expects inflation will average 6.9% in Q3 of this year and 4.9% in Q4. It said it would "ensure that the bank rate was sufficiently restrictive for sufficiently long to return inflation to the 2% target."
Having fueled the current inflation round by its massive monetary expansion policy and extremely low interest rates for years, the BoE is now desperately back-pedaling, anxious to hit its arbitrary 'target' of inflation at 2%/year. It is conscious of several things: its loss of credibility when it persisted in regarding inflation as 'transitory'; the need to placate the current government, which will face an uphill struggle to get re-elected in 2024; and the extremely sluggish growth of the UK economy, which the new tight money policy will not help. The BoE expects gross domestic product (GDP) growth to be around 0.2% in the near term - so well within the margin of error - and weaken as the effects of the higher interest rate feed through to the wider economy. The British economy is living with stagflation.