The Bank of England raised its key base rate from 0.75% to 1% at its May meeting, returning it to a level last seen in 2009. This was the fourth rise imposed by the central bank, following increases in December, February and March.
- The MPC raised the base rate by 25 basis points to 1%
- Three policymakers voted for an increase of 50 basis points
- Inflation is forecast to rise above 10% this year
The Bank of England (BoE) raised its key base rate from 0.75% to 1% at its May meeting, returning it to a level last seen in 2009. This was the fourth rise imposed by the central bank, following increases in December, February and March. The members of the Monetary Policy Committee (MPC) voted by six to three in favour of a 25 basis point rise; three members wanted to implement a steeper increase of 50 basis points.
“Global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine”
Central bank officials have become increasingly concerned about the impact of intensifying inflationary pressures. Inflation is rising around the world; the UK’s rate of inflation hit a new 30-year high during March, surging to 7% year on year, and it is expected to rise even higher following April’s increase of the energy price cap. Looking ahead, BoE officials now expect UK consumer price inflation to rise above 10% by the end of this year, compared with the BoE’s target rate of only 2%.
The MPC commented: “Global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine. This has led to a material deterioration in the outlook for world and UK GDP growth”. BoE Governor Andrew Bailey warned that UK economic growth is likely to “slow sharply”, triggering fears of the possibility of stagflation. Total real household disposable income is forecast to fall by 1.75% in 2022; apart from 2011, this is the biggest contraction since records began in 1964.
