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The Bank of England on Thursday raised interest rates to its highest level since 2009 as the central bank warned inflation could accelerate to 10% this year.
The Monetary Policy Committee voted by a majority of six to three to increase Bank Rate by 0.25 percentage points, to 1.00% from 0.75%. It is the BoE's fourth rate hike in-a-row.
Governor Andrew Bailey along with Ben Broadbent, Jon Cunliffe, Huw Pill, Dave Ramsden and Silvana Tenreyro voted in favour of the proposition. However, the trio in the minority - Jonathan Haskel, Catherine Mann and Michael Saunders - preferred to increase Bank Rate by a chunkier 0.5 percentage points, to 1.25%.
The BoE highlighted that global inflationary pressures have intensified sharply following Russia's invasion of Ukraine. This has led to a material deterioration in the outlook for world and UK growth. These developments have exacerbated greatly the combination of adverse supply shocks that the UK and other countries continue to face, it continued.
In addition, the BoE pointed out concerns about further supply chain disruption have also risen, both due to Russia's invasion of Ukraine and to Covid-19 developments in China.
Turning to inflation, the BoE said the UK consumer price index is expected to quicken further over the remainder of 2022, to just over 9% in the second quarter and averaging slightly over 10% at its peak in the fourth quarter.
The central bank forecast UK CPI to fall to a ‘little above’ its 2.0% target in two years' time and to 1.3% in three years.
Looking ahead, the BoE said ‘some degree’ of further tightening in monetary policy may still be appropriate in the coming months. The BoE said the MPC would continue to review developments in the light of incoming data and implications for medium-term inflation.
The pound was quoted at $1.2432 at midday on Thursday, down from $1.2501 at the London equities close Wednesday and declining from $1.2530 just prior to Thursday's monetary policy announcement.
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