Britain’s central bank, the Bank of England (BoE), decided on Feb. 3 to raise interest rates from 0.25 percent to 0.5 percent to curb rampant inflation.
The Bank’s nine-member monetary policy committee (MPC) voted five to four in favour of the decision. The four dissenting members all voted for a bigger increase of 0.75 percent.
This is the second interest rate rise in three months, making it the first back-to-back rise since 2004.
In December, the BoE raised rates by 0.15 percentage points to 0.25 percent, becoming the first major central bank to hike interest rates since the CCP (Chinese Communist Party) virus pandemic began.
The MPC said on Feb. 3 that it expects the Consumer Price Index (CPI), which rose to a near 30-year high of 5.4 percent in December, to move close to 6 percent in February and March. It is then expected to peak at 7.25 percent in April.
At a press conference following the rates decision, Bank of England Governor Andrew Bailey said: “We have not raised interest rates today because the economy is roaring away. The economy is only now back to the size it was immediately before the pandemic, a couple of years ago.”
He said the rate rise is “necessary because it is unlikely that inflation will return to target without it.”
Soaring energy prices are the driving force behind the inflation forecast hike. Earlier in the day, the UK energy regulator Ofgem announced that the regulatory price cap—which is reviewed every six months—would rise by a historic 54 percent to £1,971 ($2,683) a year starting in April, the same month that taxes are set to go up in the UK.
Seeking to take the sting out of the steepening price tag for energy, the British government said it would provide a series of financial support measures worth around £9 billion ($12 billion).
Under the scheme announced by Chancellor Rishi Sunak, most households will be provided with energy bill discounts totalling £350 ($476).
Bailey said the chancellor’s support measures would help take some of the pressure off households.
In response to concerns that the back-to-back rate rises come at the worst time for households, he said, “If we don’t take this action, it would be even worse.”
The bank said while the economy is expected to bounce back quickly from the impact from the Omicron COVID-19 variant in December and January, growth will then slow to “subdued rates” as inflation impacts spending.
This is set to send Britain’s jobless rate rising from 4 percent this year to 5 percent in 2024.
Tom Ozimek and PA Media contributed to this report.