The Bank of England has pushed interest rates higher as it tries to put a lid on soaring prices after UK inflation unexpectedly jumped higher last month.
Policymakers on the bank’s Monetary Policy Committee (MPC) voted seven to two to increase rates from 4 per cent to 4.25 per cent, but said they expect the economy to grow slightly in the second quarter of the year, marking a reversal of the 0.4 per cent decline in gross domestic product (GDP) the bank had anticipated last month.
Inflation is set to come back down this year despite a surprise increase in Consumer Prices Index (CPI) inflation last month, to 10.4 per cent from 10.1 per cent in January, driven by surging food and drink prices.
“CPI increased unexpectedly in the latest release, but it remains likely to fall sharply over the rest of the year,” the bank said.
It is the 11th time in a row the bank has hiked interest rates.
The MPC recognised the recent period of volatility in the global banking sector, after the collapse of the US’s Silicon Valley Bank and the rescue takeover of Credit Suisse, but stood firm in its mission to bring inflation back down to its 2 per cent target.
“The economy has been subject to a sequence of very large and overlapping shocks,” policymakers said.
“Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2 per cent target sustainably in the medium term.”
The MPC said it would make a “full assessment” of recent banking woes and market volatility in its forecast in May, and that it was monitoring the situation closely.
There was also better news for the country’s jobs market with employment growth in the second quarter likely to be stronger than expected, and a flat rather than rising unemployment rate.
British chancellor Jeremy Hunt’s spring budget earlier this month could increase GDP by about 0.3 per cent over coming years, the bank said.
The experts were also calmer about the outlook for household energy prices amid the British government’s support scheme, with lower prices set to help bring down inflation by the end of the year.