The Bank of England (BoE) reportedly decided to raise interest rates to 0.5% on Thursday and nearly half of its policymakers wanted a bigger hike to curb widespread price pressures, as the British central bank warned that inflation would hit 7%.
In a meeting conducted, four of the nine members of the Monetary Policy Committee wanted to raise interest rates by half a percentage point to 0.75% which would probably be the biggest increase if it happened in the last 25 years. The majority, including Governor Andrew Bailey, voted for a 0.25 percentage point increase.
The pound jumped about two -thirds against the U.S. dollar to trading levels above $ 1.36, the highest since Jan. 20. British government bonds were sold, with 10 -year yields hitting their highest level since January 2019.
According to the chief economist for the British Department of Business, Suren Thiru, "While the quarterly hike may have a limited impact on most firms, many will see successive rate hikes, and four members of the Monetary Policy Committee voted for a more significant rate hike."
The rate hike marks the first consecutive interest rate hike since 2004 and reflects the urgent need among MPC members to show they are on top of the rising cost of living crisis.
The BOE noted that inflation was at 5.4% last December could peak to around 7.25% in April, which would be the highest rate since the recession hit in the early 1990s and surpassed the 2% target.
High inflation means after -tax income for working households will fall by 2% this year and 0.5% next year, while weak demand will push unemployment up to 5% in three years.
The BoE said it would begin easing its 895 billion pounds ($ 1.2 trillion) quantitative easing program. Price pressures are expected to continue for longer than previously expected.
