The Bank of England’s monetary policy committee have voted to raise interest rates from 0.5 per cent to 0.75 per cent- the highest since the beginning of the Covid-19 pandemic.
The decision comes amid climbing prices and concerns the war in Ukraine could exacerbate the situation.
UK average inflation is currently at 5.5 per cent, far above the Bank’s preferred 2 per cent rise.
They now forecast that inflation could reach 8 per cent in the second quarter of 2022.
Interest rates are formally set by a monthly meeting of the Bank of England’s Monetary Policy Committee, one which has been independent of government since 1997.
Kitty Ussher, Chief Economist of the Institute of Directors welcomed the decision, saying: “Business leaders will welcome the Bank of England’s continuing to take action in the face of rising inflation. Unstable prices add to the cost of doing business, and it is therefore important that the monetary authorities do everything they can to bring greater confidence into the system at a difficult time.
“Our most recent data from our members shows, however, that expectations of future inflation are still rising, so it may be that further corrective action will be needed in the months ahead, depending on how the UK economy is affected by fast-moving events elsewhere in the world.
Alpesh Paleja, lead economist at the CBI said: “With ongoing conflict in Ukraine pushing global commodity prices higher and exacerbating supply chain disruption, the MPC are clearly making moves to counter growing inflation. But they will be walking a tightrope in the months ahead, having to both keep price pressures in-check and manage the impact of tighter monetary policy on economic growth – particularly against a background of rising living costs.
“As households and businesses brace for further price rises, targeted support from government will be needed to cushion the blow until the outlook is on a firmer footing. By using the forthcoming Spring Statement to facilitate more investment-led growth – including through the introduction of a permanent investment – the Chancellor can push the UK onto a more ambitious growth trajectory.”
