The Bank of England has hiked its benchmark interest rate, bringing borrowing prices back to pre-pandemic levels and warning that the war in Ukraine might push inflation well above 8% later this year.
This was disclosed in the Monetary Policy Summary and minutes of the Monetary Policy Committee meeting ending on 16 March 2022. Eight of the bank’s nine policymakers voted in favour of the 0.75% rise, with Deputy Governor, Jon Cunliffe voting against it.
Inflation is expected to rise to over 8% in the second quarter, up from 7.25% previously recorded, according to the central bank. The peak rate later this year might be “several percentage points higher” than forecast in February, according to the report.
— Bank of England (@bankofengland) March 17, 2022
What BOE is saying
- The Bank said, “The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 16 March 2022, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.25 percentage points, to 0.75%. One member preferred to maintain Bank Rate at 0.5%.”
- The decision signals that policymakers will have a more difficult balancing act in the coming months as they consider how to battle inflation while also considering the growing challenges to growth posed by the crisis in Ukraine.
- The MPC’s central projections in the February Monetary Policy Report, which were released before Russia’s invasion of Ukraine, was that “UK GDP growth was expected to slow to subdued rates during the course of this year. This in large part reflected the adverse impact of the previous, already large, increases in global energy and tradable goods prices on UK real aggregate income and spending.”
- Hence, there is an expected uptick in core misery indicators such as Inflation and unemployment in the UK economy,” a margin of spare capacity was projected to open up and the unemployment rate to rise to 5% by 2025. CPI inflation was expected to peak at around 71⁄4% in April 2022.”
Further out, the BOE stated that inflation will “fall back materially,” a statement that, when combined with the bleak picture for living standards, signals a reversal of current market expectations for rates to reach 2% by the end of the year.
For the time being, the BOE is leading a global tightening of monetary policy, and it is the first major institution to return rates to their pre-crisis levels. The BOE made its judgment just hours after the United States Federal Reserve hiked interest rates.
What you should know
- In January, the annual rate of consumer price inflation hit 5.5%, the highest level since March 1992, when Britain was emerging from a long period of inflation-feeding high wage agreements.
- In Nigeria, the inflation rate changed direction in February as it rose to 15.7% from 15.6% recorded in the previous month. This represents a 0.1% point increase compared to the rate recorded in January 2022.
- Earlier in January, the Central Bank of Nigeria announced that the increase of interest rates in advanced economies will not affect Nigeria’s economy as the funds released in these economies through stimuluses did not flow into Nigeria.