Third Straight Rate Hike by Bank of England Citing Inflation Concerns Due To Ukraine War

The Bank of England has announced raising of interest rates on Thursday, which is the third time in a row, as the central bank pointed out towards the likelihood that the Russia-Ukraine war keeping rate of inflation high in the country high for a longer period of time.

The Bank’s Monetary Policy Committee voted 8-1 in favour of the hike of the main Bank Rate by 0.25 percentage point, bringing it to 0.75 per cent.

Prior to Russia’s invasion of Ukraine, inflation in the United Kingdom was already at a 30-year high, putting additional upward pressure on the central bank’s inflation forecasts.

Against a backdrop of solid economy and a robust job market in the United Kingdom, the Monetary Policy Committee raised interest rates for the first time since 2004 and raised its inflation prediction to a 7.25 per cent high in April at its most recent meeting in February.

The Bank had previously stated that any additional tightening of monetary policy would be contingent on the medium-term prospects for inflation, which had been pushed higher by Moscow’s invasion of Ukraine and related risks to energy supply.

“Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow,” the Bank said in Thursday’s report.

Inflation is expected to rise further in the following months, to around 8% in the second quarter of 2022, and possibly even higher later in the year, according to the Bank.

The MPC also stated that “some more mild tightening in monetary policy may be needed in the coming months” due to the tight labour market and continuing domestic cost and price pressures, while the risks are two-sided depending on the development of medium-term inflation forecasts.

Following the decision, sterling fell by 0.3 per cent versus the dollar, while the euro rose by roughly 0.5 per cent against the pound.

(Adapted from CNBC.com)



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