- The Monetary Policy Committee voted 7-2 in favor of raising the bank’s interest rate to 4.25%, in a widely expected move after official data showed that UK inflation unexpectedly jumped to 10.4% annually in February.
- The bank’s monetary policy committee decided that the UK banking system “remains resilient” after recent bank failures in the US and Switzerland.
A lane near the Bank of England (BOE) in the City of London, UK, on Thursday, March 18, 2021.
Holly Adams | bloomberg | Getty Images
LONDON – The Bank of England on Thursday raised interest rates by 25 basis points as it grapples with persistently high inflation on concerns about the banking system.
The Monetary Policy Committee voted 7-2 in favor of raising the bank’s interest rate to 4.25%, in a widely expected move after official data on Wednesday showed that UK inflation unexpectedly jumped to 10.4% annually in February.
In its summary, the MPC highlighted that global growth is expected to be stronger than forecasted in the February monetary policy report, while core consumer price inflation – which excludes volatile food and energy prices – remained elevated.
The Bank of England estimates that the additional fiscal support announced in Finance Minister Jeremy Hunt’s spring budget last week will increase the UK’s GDP level by around 0.3% over the coming years.
“Gross domestic product is still likely to have been broadly flat at the turn of the year, but is now expected to pick up slightly in the second quarter, compared with the 0.4% decline expected in the February report,” the MPC said in its report.
“As the Government’s Energy Price Guarantee (EPG) will be maintained at £2,500 for a further three months from April, real disposable income for households may generally remain flat in the near term, rather than decline significantly.”
UK banking system ‘remains resilient’
The US Federal Reserve also raised its key interest rate by 25 basis points on Wednesday, and suggested that “an additional policy fixation may be appropriate.” She acknowledged the potential impact of recent problems in the banking system.
The Swiss National Bank raised its policy rate by 50 basis points, to 1.5%, on Thursday.
Central banks around the world are watching the fallout from the collapse of the US-based Silicon Valley bank and the emergency rescue of Credit Suisse.
Many analysts believe that the risk of contagion has receded in recent days, and the Bank’s Financial Policy Committee decided that the British banking system “remains resilient”.
The FPC estimated that the UK banking system “maintains strong capital and liquidity positions, and is well positioned to continue to support the economy in a wide range of economic scenarios, including a period of rising interest rates.”
“Reflecting these developments, wholesale bank financing costs have risen in the UK and other advanced economies,” the Monetary Policy Committee said in a report on Thursday.
“The Monetary Policy Committee will continue to closely monitor any impacts on credit conditions faced by households and businesses, and thus the impact on the overall economy and inflation expectations.”
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