Bank of England raises interest rates by 0.25 per cent, resists bolder move

UK's central bank has been under pressure to raise interest rates more aggressively

By Agencies

Published: Thu 16 Jun 2022, 3:47 PM

The Bank of England has raised interest rates by a quarter-percentage-point, shrugging off pressure for a bolder move to combat price increases that have pushed inflation to a 40-year high, according to AP.

While the United Kingdom’s central bank began raising interest rates earlier than its counterparts, the Bank of England is now trailing the U.S. Federal Reserve in the worldwide fight against inflation fueled by soaring food and energy prices.

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The Bank of England’s action Thursday took its key rate to 1.25 per cent and marked five consecutive increases that began in December.

Earlier the Bank of England was under pressure to raise interest rates more aggressively.

“It is quickly becoming apparent that more radical action is needed for the Bank of England to establish some sense of stability, because tinkering around the edges simply isn’t cutting it,” Michael Hewson, chief market analyst at CMC Markets UK, said in a note to clients.

The war in Ukraine has boosted food and energy prices as the fighting disrupts shipments of oil, natural gas, grain and cooking oil. That is adding to price increases that began last year as the global economy started to recover from the Covid-19 pandemic.

Bank of England policymakers have been cautious about raising interest rates too quickly, arguing that many of the inflationary pressures facing the British economy are external and beyond the bank’s control.

But price increases are now becoming embedded in the economy, fuelling demands for higher wages and slowing economic growth as consumers and businesses curtail purchases.

Federal Reserve Chairman Jerome Powell acknowledged the challenges facing monetary policymakers when he spoke to reporters Wednesday.

“This is an extraordinarily unusual time, and we really don’t have a template or any experience of a situation like this,” he said. “And so, I think we have to be humble about our ability to understand the data. . We need to see more data. We need to be a little bit patient.”

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