The Bank of England has raised interest rates for the 14th time in a row, to 5.25%, as it looks to fight inflation.
It marks a quarter percentage point increase and comes despite inflation coming down quicker than expected in June. However at just under 8% inflation remains quadruple the Bank’s target.
The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6–3 to increase Bank Rate by 0.25 percentage points. Two members preferred to increase Bank Rate by 0.5 percentage points, to 5.5%, and one member preferred to maintain Bank Rate at 5%.
The Bank noted that inflation is expected to fall to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation. Services price inflation, however, is projected to remain elevated at close to its current rate in the near term. Inflation is anticipated to return to the 2% target by 2025 Q2.
A statement from the Bank of England said: “Inflation in the UK has begun to fall, the economy is growing and unemployment is low. But inflation is still too high. In June, prices were 7.9% higher than a year ago, well above our target of 2%.
“As the UK’s central bank, an independent body, our job is to keep price rises in the UK low and steady. The best way we can make sure inflation comes down and stays down is to raise interest rates. So that’s what we’re doing.
“We’ve raised our interest rate to 5.25% this month.
“Higher interest rates mean higher costs for some people. We know that is not easy when there is already a lot of pressure on their finances.
“But if we don’t raise interest rates now, high inflation could stay with us for longer. That hits everyone, particularly those who can least afford it.
“We expect inflation to fall further to around 5% this year and meet our 2% target by early 2025. That means prices would still be rising, but they would be only rising gradually.”
Anna Leach, deputy chief economist, CBI, said: “With inflation having come down quicker than expected in June, the pressure was eased on the MPC to deliver another bumper rate rise. But, with inflation close to 8% – quadruple the Bank’s target – and wage growth around 7%, interest rates are likely to head higher in coming months.
“Economic conditions remain challenging for households and businesses alike. For firms, the cost of inputs is a third higher than pre-pandemic, the labour market remains very tight driving up wage and recruitment costs, and demand is sluggish.
“Meanwhile real incomes are still falling for households and higher interest rates are squeezing spending power further. To drive up growth and living standards in the UK without generating inflation, we need investment to increase the productive capacity of the economy.
“Improvements in the tax and regulatory system – as recommended in our recently published tax roadmap and green growth reports – can provide a platform for transforming the UK economy.”
