Bank of England raises key interest rate to tackle inflation

The Bank of England has raised its key interest rate for the third time since December last year as it pushes ahead faster than other central banks in tackling a global wave of inflation caused by soaring energy prices.

The bank on Thursday boosted its key rate to 0.75 percent after Russia’s all-out war in Ukraine pushed oil prices to a 13-year high earlier this month.

It came a day after the United States Federal Reserve raised its benchmark short-term rate to 0.25 percent to tame the worst inflation since the early 1980s.

The Fed had left it at close to zero since the coronavirus pandemic struck two years ago.

The European Central Bank left its rates unchanged last week but announced an early exit from its economic stimulus efforts in a bid to combat record inflation in the 19 countries that use the euro.

The Bank of England, which voted 8-1 in favour of the increase, said the war in Ukraine is “likely to accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes”.

Previous hikes

The British central bank began raising rates in December last year amid concern about rising consumer prices as the world began to emerge from the coronavirus pandemic, increasing demand for energy and raw materials needed by industry.

Even before Russia’s full-scale invasion of Ukraine, the Bank of England expected consumer price inflation to peak at about 7.25 percent in April, more than three times its target of 2 percent.

The Resolution Foundation, a think-tank focused on helping low-income families, said last week that inflation may now peak at more than 8.4 percent, which would push inflation to its highest level since 1982.

Central banks in other countries may soon catch up to the Bank of England. The Federal Reserve signalled that it may raise rates six more times this year.