Bank of England hikes rates in clamour to contain spiralling inflation

The Bank of England (BoE) raised interest rates to 0.5 per cent on Thursday and nearly half of its policymakers wanted a bigger increase to contain rampant price pressures, as the central bank warned inflation will soon top 7 per cent.

In a surprise split decision, four of the nine members of the Monetary Policy Committee (MPC) wanted to raise interest rates by half a percentage point to 0.75 per cent. This would have been the biggest increase in borrowing costs since the BoE became operationally independent 25 years ago.

The majority, including governor Andrew Bailey, voted for a 0.25 percentage point increase.

The move follows hot on the heels of a rate hike in December, marking the first back-to-back increases since 2004 and reflecting urgency among MPC members to show they are on top of a growing cost-of-living crisis.

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Inflation peak

The BoE said consumer price inflation – which stood at 5.4 per cent in December – now looks set to peak at around 7.25 per cent in April, which would be the highest rate since the recession-ravaged early 1990s and miles off its 2 per cent target.

Earlier on Thursday, British energy regulators raised the maximum bill for typical household usage by around £700 (€841) to nearly £2,000 pounds.

In contrast with the approach taken by the European Central Bank, the BoE warned further "modest tightening" is in the pipeline, even though growth will be hurt by global energy and goods price inflation. – Reuters