The Bank of England (BoE) lifted interest rates by another 0.25 percentage point on Thursday, but adopted a more dovish tone on concerns that inflation will remain higher for longer due to the Ukraine war.
BoE’s interest rate now stands at 0.75%
It’s the third time in a row that the central bank of the United Kingdom has raised rates, which now stand at 0.75%. The BoE said:
Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow.
U.K. inflation was already at levels last seen about thirty years ago prior to the start of the Ukraine war, which further pushed the energy prices up and made it even more challenging for the central bank to capture inflation.
Double-digit inflation rate is a real risk
The Bank of England now expects inflation to hit about 8.0% in the second quarter, and go even higher in the back half of 2022. Commenting on the forecast, Quilter Investors’ Paul Craig said:
The BoE had no choice but to keep raising rates. It seems, ultimately, a double-digit inflation rate is not off the cards.
The blue-chip FTSE 100 index didn’t respond much to the rate update on Thursday. A day earlier, the U.S. Federal Reserve also kickstarted its rate hike cycle with a 25 basis points increase in interest rate.
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