Bank of England raises key interest rate from 3% to 3.5% in bid to tackle domestic inflation

The Bank of England (BoE) has raised its key interest rate from 3% to 3.5%, the ninth rate rise in a row. The central bank’s Monetary Policy Committee (MPC) voted 6-3 in favour of the move and said that further increases in the bank rate may be required to tackle what it fears may be persistent domestic inflation pressures from prices and wages. 

Issuing a statement on Thursday, the BoE said, “Domestic wage and price pressures are elevated. There has been limited news in other domestic and global economic data relative to the November Report projections.”

The BoE said that most indicators of global supply chain bottlenecks have eased, but global inflationary pressures remain elevated. 

“Bank staff now expect UK GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than expected in the November Report. Household consumption remains weak and most housing market indicators have continued to soften. Surveys of investment intentions have also weakened further,” Thursday’s statement said. 

The BoE added that although labour demand began to ease, the labour market remained tight. 

The central bank further said that the employment rate rose slightly to 3.7% in the three months to October. ”Vacancies have fallen back, but the vacancies-to-unemployment ratio remains at a very elevated level,” the statement said. 

In November, the BoE had said that Britain was entering a long recession and predicted that the economy would shrink by 0.3% in the final quarter of 2022, a report by news agency Reuters said. However, now it expects a fall of 0.1%. 

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