Bank Of England Raises Rates, Unsure On Future Moves

The Bank of England raised interest rates on Thursday in a bid to keep fast-rising inflation in check. However, with the British economy facing a huge hit from soaring energy prices, it softened its language on the need for further increases.

Eight out of nine members of the bank’s Monetary Policy Committee (MPC) voted to raise the Bank Rate to 0.75 percent from 0.5 percent, following the US Federal Reserve's decision on Wednesday to raise borrowing costs for the first time since the Covid-19 pandemic.

Deputy Governor Jon Cunliffe voted to keep rates on hold, warning of a big hit to demand from higher commodity prices.

The pound slumped almost a cent against the dollar and British government bond prices jumped as investors trimmed their bets that Britain’s central bank would raise rates rapidly this year.

The bank said inflation was set to reach around 8 percent in April — almost a percentage point higher than it forecast last month — and warned it could peak even higher later in the year.

Energy bills, exacerbated by the conflict in Ukraine, are likely to jump again in the autumn when regulated tariffs are reset, on top of a 50 percent rise coming next month.

Policymakers on Thursday pushed back, however, against investors' bets that the Bank Rate will rise sharply to around 2 percent by the end of this year, toning down its language on the need for more hikes.

"The Committee judged that some further modest tightening might be appropriate in the coming months, but there were risks on both sides of that judgement depending on how medium-term prospects evolved," the bank said. (Reuters)