Decision to lift benchmark rate to 0.75% was unanimous among policymakers on the MPC
The Bank of England raised interest rates to their highest level in almost a decade on Thursday, saying recent data vindicated policymakers’ view that the first quarter slowdown in UK growth was temporary.
Members of the Monetary Policy Committee voted unanimously for a 25 basis point increase, taking the BoE’s benchmark interest rate to 0.75 per cent — the highest level since the global financial crisis a decade ago.
A rate rise was widely expected, with markets pricing in the quarter-point rate rise almost fully in the run-up to this week’s meeting.
The Bank of England is the third major central bank to meet this week, and has joined the US Federal Reserve in signalling further interest rate rises are on the way.
The Bank of Japan, however, declined to join in any synchronised global tightening at its meeting on Monday, and continued its massive asset purchase programme.
The pound initially rose following the announcement, then fell 0.5 per cent against the dollar during BoE governor Mark Carney’s press conference, to $1.305 — a lower level than before the rate rise was announced.
Mr Carney said the central bank’s interest rate cut two years ago, following the Brexit vote, had worked but now was the time to focus on taming inflation rather than supporting jobs growth.
“The strategy has worked,” he said. “Employment is at a record high, there is very limited spare capacity, real wages are picking up and external price pressures are declining.” In the minutes from this week’s meeting, MPC members argued that with low productivity and lower net migration holding back potential growth in the UK, even modest increases in demand would lead to domestic inflationary pressures.
The policymakers predicted that a tight labour market would continue to push up wage growth, with further rate rises needed to bring inflation back to its 2 per cent target.
Some economists and business groups criticised the BoE for pushing ahead with rate rises while the UK economy is still hampered by uncertainty over the outcome of the Brexit negotiations, and economic data has pointed to only lacklustre output growth.
Suren Thiru, head of economics at the British Chambers of Commerce, said: “The decision to raise interest rates, while expected, looks ill-judged against a backdrop of a sluggish economy.
But Mr Carney, after being asked whether it was worth waiting for the outcome of Brexit negotiations, said it would be a mistake to hold off for “perfect certainty” before raising rates. “There’s a wide range of Brexit outcomes, but in many of them interest rates will be at least as high as they are today,” he said. “So we don’t need to keep our powder dry for that.”