The Bank of England lifted its key interest rate by a quarter-point on Thursday, matching the pace of the Federal Reserve and the European Central Bank this month.
Governor Andrew Bailey hinted that there could be more hikes to come. The U.K. is dealing with the fastest inflation among the Group of Seven nations, with annual price gains north of 10%. As Britons fret about a national cost-of-living crisis, nurses, train drivers, and teachers are going on strike for higher pay, underscoring the challenge the BoE faces in bringing inflation back down.
“If there were to be evidence of persistent pressures, then further tightening in monetary policy would be required,” Bailey said at a press conference.
The increase marks the 12th consecutive move after the central bank started tightening in December 2021—a few months earlier than the Fed. It puts the main BoE rate at 4.5%. That’s higher than the ECB’s main rate of 3.75%, but below the Fed’s range of 5% to 5.25%.
The BoE’s latest economic forecasts show that inflation hasn’t slowed as much as the bank had expected in February, the last time it updated its projections.
The forecasts for growth were upgraded, with the bank saying that activity had been less weak than expected. In February, it predicted five consecutive quarters of contraction. It now sees growth of 0.2% in the first half of the year.
“The committee now judges that the path of demand is likely to be materially stronger than expected,” it said in a statement, though it will still be “subdued by historical standards.”
The inflation rate fell less than expected in March, slipping to 10.1% from 10.4%. That’s also higher than the BoE anticipated a few months ago.
The International Monetary Fund last month predicted the U.K.’s performance would be the worst of any major economy this year, with the highest inflation rates. That’s largely down to the country’s need to import natural gas, for which prices have skyrocketed since Russia invaded Ukraine last year. Food imports and additional costs of trade stemming from Brexit are also a drag.
Write to Brian Swint at [email protected]
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