UK central bank delivers second interest rate hike in a decade
Print Edition
THE Bank of England hiked interest rates yesterday by a quarter-point to 0.75 percent to help tame high inflation, and upgraded its 2019 economic growth forecast despite investor fears of a chaotic Brexit.
The British central bank’s nine-member Monetary Policy Committee voted unanimously to raise rates for only the second time since the global financial crisis, but left the quantitative easing stimulus unchanged.
The BOE also maintained its 2018 economic outlook, describing a Q1 slowdown as “temporary” with momentum set to recover in the second quarter — despite widespread trade-linked worries over the global economy.
Governor Mark Carney, addressing reporters after the announcement, cautioned that the bank is “well prepared for whatever path the economy takes, including a wide range of potential Brexit outcomes.”
The pound firmed on yesterday’s news, which chimed with market expectations, while London’s FTSE 100 shares index pared losses to stand 0.9-percent lower.
“Although the global outlook was a little softer, recent data appeared to confirm that the dip in UK output in the first quarter had been temporary, with momentum recovering in the second quarter,” the BOE said in minutes from the gathering.
“The labor market had continued to tighten and unit labour cost growth had firmed. Given these developments, a 0.25 percentage point increase in bank rates was warranted at this meeting to return inflation sustainably to the target.”
Borrowing costs have now risen above 0.50 percent for the first time since March 2009, having already been hiked from a record low last November to combat rising inflation.
The 12-month inflation rate has held stubbornly above the BOE’s official 2.0-percent for the last 17 months, as Brexit has weighed on the pound and pushed up the cost of imported goods.
High oil prices, which have leapt 50 percent over the last year, have also fuelled inflationary pressures.
Inflation — currently at 2.4 percent — was set to rise slightly higher than the BOE had predicted in May.
There would need to be “an ongoing tightening of monetary policy over the forecast period ... to return inflation sustainably to the 2.0-percent target at a conventional horizon,” the MPC added.
“All members agreed that any future increases in bank rate were likely to be at a gradual pace and to a limited extent.”
Rising interest rates are a boon for savers but ramp up the cost of credit for consumers and companies.
The BoE meanwhile forecast that the UK economy would expand by 1.8 percent next year, despite the nation’s scheduled withdrawal from the European Union, up from its previous forecast of 1.7 percent.
At the same time however, the bank left unchanged its 2018 forecast of 1.4 percent growth.
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