THE BANK OF ENGLAND (BOE) ANNOUNCED A FRESH INCREASE RATES UP TO 5.2%
The Bank of England (BoE) announced a fresh increase in the base rate, pushing interest rates up to 5.25%. This marks the highest level since the global financial crisis that unfolded 15 years ago. Following the fourteenth consecutive meeting of the Bank's Monetary Policy Committee (MPC) focused on rate adjustments, there has been a quarter-percentage-point increase in rates. The MPC's responsibility lies in setting monetary policy to align with the Bank's inflation target of 2%. This has led to a gradual hike in interest rates starting from December 2021 when they were at a historically low rate of 0.1%. The Committee, which had previously opted for a substantial 0.5 percentage point increase, this time favoured a 0.25 percentage point rise with a vote of six to three. Two members were in favour of a more aggressive 0.5 percentage point hike, while another member sought to maintain the rate at 5%. This dynamic reflects the ongoing efforts of MPC members to rein in the UK's elevated inflation rate. According to data from the Office for National Statistics (ONS), the Consumer Prices Index (CPI) inflation in the UK has dropped from its peak of 11.1% in the previous October to 7.9% in the twelve months leading up to June. Although this represents a decrease, it remains nearly four times higher than the BoE's 2% target, at this was the main driver of the decision to raise interest rates again. One of the primary factors fuelling inflation has been food prices. While there has been a slight decline in the pace of food price increases from 18.3% in May to 17.3%, as per ONS figures, it is still significantly higher than a year ago. In its official statement released today, the BoE conveyed its intention to monitor signs of sustained inflationary pressures as well as the economy's resilience. This includes factors such as labour market conditions and the behaviour of wage growth and services price inflation. The Bank also indicated that if there were signs of more persistent pressures, it would necessitate further tightening of monetary policy. Author: Clair Dart, Partner, Alliotts, https://www.alliotts.com/about-us/
