Bank of England hikes interest rates but resists bolder move

Jun 16, 2022, 12:43 AM | Updated: Jun 17, 2022, 3:51 am

LONDON (AP) — The Bank of England raised interest rates by a quarter-percentage point Thursday, shrugging off pressure for a bolder move to combat price increases that have pushed inflation to a 40-year high.

The bank’s monetary policy committee voted 6-3 to boost its key rate to 1.25%, with the dissenters supporting a larger half-point increase. The U.S. Federal Reserve acted more aggressively on Wednesday, raising its benchmark rate by three-quarters of a percentage point to a range of 1.5% to 1.75%.

The United Kingdom’s central bank said its decision was based on an effort to contain inflation without choking off economic growth, which was just starting to recover from the coronavirus pandemic when food and energy prices began to rise worldwide. But the bank indicated it was ready to act more decisively if inflation becomes more deeply embedded in the economy.

“The scale, pace and timing of any further increases in bank rate will reflect the committee’s assessment of the economic outlook and inflationary pressures,” the bank said. “The committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.”

The decision came as the bank said it expects inflation to peak at more than 11% in October, a full percentage point higher than its previous forecast. The consumer price index rose by 9% in April, the highest since 1982 and more than four times the bank’s 2% target.

While the Bank of England began raising rates before its counterparts, it has now fallen behind the Fed in the worldwide fight against inflation fueled by soaring food and energy prices. None of the bank’s five consecutive increases since December has been more than a quarter-point.

Some analysts criticized the bank for failing to act more decisively in the face of a worsening economic picture.

“With the BoE seeing CPI at 11% — no less — in October, saying it will act forcefully if needed, and that it is particularly alert to more persistent inflation pressure … this begs the question: Why not hike more aggressively now? Why wait?” said Fawad Razaqzada, a market analyst at StoneX.

The war in Ukraine has boosted food and energy prices as the fighting disrupts shipments of oil, natural gas, grain and cooking oil. That is adding to price increases that began last year as the global economy started to recover from the COVID-19 pandemic.

Bank of England policymakers have been cautious about raising interest rates too quickly, arguing that many of the price pressures facing the British economy are external and beyond the bank’s control.

But price increases are now becoming embedded in the economy, fueling demands for higher wages and slowing economic growth as consumers and businesses curtail purchases.

Figures released this week by the Office for National Statistics showed that economic output stagnated in February and shrank by 0.1% in March, raising concerns that Britain may be headed for a recession.

The World Bank last week downgraded its outlook for the global economy and raised concerns about the return of “stagflation” — the combination of high inflation and sluggish growth last seen in the 1980s.

Nevertheless, a majority of the Bank of England’s monetary policy committee indicated that there had been “fairly limited” economic developments since the bank’s last report in May, according to the minutes of their meeting.

The three members who voted for a bigger increase were more pessimistic about the strength of the causes of inflation.

“These members also judged that monetary policy should lean strongly against risks that recent trends in pay growth, firms’ pricing decisions, and inflation expectations in the economy more widely would become more firmly embedded,” the minutes said. “Faster policy tightening now would help to bring inflation back to the target sustainably in the medium term, and reduce the risks of a more extended and costly tightening cycle later.”

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


FILE - The logo of the Organization of the Petroleoum Exporting Countries (OPEC) is seen outside of...

Associated Press

Saudi Arabia reducing global oil supply, could spell higher prices for US drivers

Saudi Arabia will reduce how much oil it sends to the global economy, taking a unilateral step to prop up the sagging price of crude.

1 day ago

This photo provided by Robert Wilkes, owner of a house boat management company, shows smoke rising ...

Associated Press

Houseboats catch fire while docked at Wahweap Marina on Lake Powell

More than half a dozen house boats momentarily caught fire at a popular boating destination on the Utah-Arizona line on Friday.

3 days ago

File - Women work in a restaurant kitchen in Chicago, Thursday, March 23, 2023. On Friday, the U.S....

Associated Press

US hiring, unemployment jump in May and what that says about the economy

The nation’s employers stepped up their hiring in May, adding a robust 339,000 jobs, well above expectations.

3 days ago

(Pixabay Photo)...

Associated Press

Oath Keeper from Arizona sentenced for role in Jan. 6 riot at US Capitol

Edward Vallejo, a U.S. Army veteran from Phoenix, oversaw a “Quick Reaction Force” at a Virginia hotel that was prepared to deploy an arsenal of weapons into Washington if needed, authorities say.

4 days ago

FILE - U.S. Border Patrol Chief Raul Ortiz listens during a news conference, Jan. 5, 2023, in Washi...

Associated Press

US Border Patrol chief is retiring after seeing through end of Title 42 immigration restrictions

The head of the U.S. Border Patrol announced Tuesday that he was retiring, after seeing through a major policy shift that seeks to clamp down on illegal crossings at the U.S.-Mexico border following the end of Title 42 pandemic restrictions.

5 days ago

FILE - President Joe Biden talks with House Speaker Kevin McCarthy of Calif., on the House steps as...

Associated Press

House OKs debt ceiling bill to avoid default, sends Biden-McCarthy deal to Senate

The House approved a debt ceiling and budget cuts package late Wednesday, as President Joe Biden and Speaker Kevin McCarthy assembled a bipartisan coalition of centrist Democrats and Republicans against fierce conservative blowback and progressive dissent.

5 days ago

Sponsored Articles


OCD & Anxiety Treatment Center

5 mental health myths you didn’t know were made up

Helping individuals understand mental health diagnoses like obsessive compulsive spectrum disorder or generalized anxiety disorder isn’t always an easy undertaking. After all, our society tends to spread misconceptions about mental health like wildfire. This is why being mindful about how we talk about mental health is so important. We can either perpetuate misinformation about already […]


Desert Institute for Spine Care

Spinal fusion surgery has come a long way, despite misconceptions

As Dr. Justin Field of the Desert Institute for Spine Care explained, “we've come a long way over the last couple of decades.”

(Photo: OCD & Anxiety Treatment Center)...

OCD & Anxiety Treatment Center

Here’s what you need to know about OCD and where to find help

It's fair to say that most people know what obsessive-compulsive spectrum disorders generally are, but there's a lot more information than meets the eye about a mental health diagnosis that affects about one in every 100 adults in the United States.

Bank of England hikes interest rates but resists bolder move