The Bank of England raised interest rates to their highest since 2009 at 1 per cent on Thursday to counter inflation now heading above 10 per cent, even as it sent a warning that Britain risks falling into recession.
The central bank's nine rate-setters voted six-three for the quarter-point rise from 0.75 per cent. But Catherine Mann, Jonathan Haskel and Michael Saunders called for a bigger increase to 1.25 per cent to stamp out the risk of the inflation surge getting embedded in the economy.
Economists polled by Reuters had forecast a more dovish eight-one vote to raise rates to 1 per cent, with one policymaker opposing a hike.
Central banks around the world are scrambling to cope with the surge in inflation that they once described as transitory when it began with the reopening of the global economy, before Russia’s invasion of Ukraine sent energy prices spiralling.
The Bank of England said it was also worried about the impact of China’s Covid-19 lockdown policies, which threaten to hit supply chains again and add to the inflation pressure.
On Wednesday, the US Federal Reserve raised rates by half a percentage point to a range of 0.75-1.0 per cent, its biggest increase since 2000, and Fed chair Jay Powell said further 50 basis-point hikes were on the table for the next two meetings.
The Bank of England’s move represented its fourth consecutive rate hike since December – the fastest increase in borrowing costs in 25 years – and it hardened its message about further increases, despite its worries about a sharp economic slowdown.
The central bank said most policymakers believed “some degree of further tightening in monetary policy may still be appropriate in the coming months”.
It dropped the word “modest” to describe the scale of rate hikes ahead. – Reuters
