The Bank of England has raised interest rates again, further increasing pressure on households and businesses by pushing borrowing costs up.
Governor Andrew Bailey announced that officials had agreed a rate of 3.5 per cent, up by half a percentage point to the highest level since 2008.
Six members of the Bank’s nine-strong Monetary Policy Committee (MPC) backed the 0.5 per cent rise, which reflected a slight slowdown from last month’s 33-year record rise of 0.75 per cent.
The Bank’s decision to raise rates for the ninth time in a row reflects the distance the economy has travelled in little more than one year since borrowing costs were at their lowest ever.
Britain is still forecast to enter recession, though the Bank has revised its projection upwards since November to reflect positive movements in the economy.
The pound dipped in response to the rate announcement, dropping as much as 1 per cent against the dollar before recovering to 0.78 per cent to take the exchange rate to 1.232.
Thursday’s vote was taken after official figures showed inflation had eased by more than expected, with the Consumer Prices Index (CPI) rising 10.7 per cent in November – still far above the Bank’s 2 per cent target but down from October’s 41-year high of 11.1 per cent.
The MPC said a “forceful” policy response was justified despite the encouraging figures as the labour market remained tight with a high number of vacancies and rising unemployment. There were also signs that inflationary pressures could stick around for longer than thought, the MPC said.
Data earlier this week showed regular pay, excluding bonuses, rose by 6.1 per cent in the three months to October – a record outside of the pandemic – as workers push to avoid being left behind by after an extreme rise in the cost of living over a relatively short period.
Governor Bailey at a press conference after the Bank issued its latest Financial Stability Report on Tuesday
(POOL/AFP/Getty)
Despite rising, wages continued to be outstripped by prices, falling by 3.9 per cent in real terms after CPI was taken into account.
The Bank’s latest decision puts greater pressure on lenders to raise mortgage repayment rates, meaning millions of households could be stuck with higher monthly bills on top of rising expenses elsewhere.
Britain’s housing market continued to “soften”, the MPC said, while household consumption remained weak.
The Bank now expects UK GDP to decline by 0.1 per cent in the final quarter of 2022, which is 0.2 percentage points stronger than expected in last month’s report but would still show the UK entering a technical recession.
Chancellor Jeremy Hunt said: “High inflation, exacerbated by Putin’s war in Ukraine, continues to plague countries across the world, eating into people’s pay cheques and driving up food and energy prices.
“I know this is tough for people right now, but it is vital that we stick to our plan, working in lockstep with the Bank of England as they take action to return inflation to target.”
Shadow chancellor Rachel Reeves said the Bank’s decision was “yet more evidence that the government have lost control of the economy.”
Unions warned that higher borrowing costs risked leaving people even further behind cost of living rises. Kate Bell, head of economics at the TUC, said: “With the UK economy in recession, and the value of everyone’s pay plummeting, this rate rise could make a bad situation worse.
“The priority now should be protecting living standards and boosting the economy to stop the recession and protect people’s jobs. The best way to do this is by giving working people decent pay rises that keep up with the cost of living.”
Earlier, a spokesperson for the Unite union said the Bank was wrong to approve the rate rise, warning another rise in borrowing costs “could be the straw that breaks the camel’s back”.
Housing market continued to ‘soften’
(PA)
Mr Bailey earlier sought to cool market expectations for how high interest rates would ultimately increase.
The Bank said on announcing Thursday’s increase that inflation was expected to drop sharply from mid-2023.
Britain’s central bank reflected a global trend in slowing the pace of rate rises. The European Central Bank and Swiss National Bank also approved raised rates 0.5 per cent on Thursday after a prior 0.75 per cent hike, while the US Federal Reserve did the same earlier in the week.
Kaynak: briturkish.com