The Bank of England raised its key interest rate to 0.5% on Thursday, meeting investor expectations, in an attempt to contain runaway price pressures, with the central bank warning that inflation in Britain would soon top 7%.
Four of the nine members of the Monetary Policy Committee wanted to raise interest rates by half a percentage point to 0.75%. However, the majority, including Central Bank Governor Andrew Bailey, voted for a 0.25 percentage point increase.
The Bank of England said consumer price growth, which stood at 5.4% in December, could hit a nearly three-decade high of 7.25% in April.
“Given the tightening of the labor market and signs of sustained domestic price and cost pressures, all members of the Committee concluded that at this meeting a bank rate hike is justified,” the minutes of the Bank of England meeting dated February 2 say.
The central bank also said it would start winding down its £895 billion ($1.2 trillion) quantitative easing program, and in doing so, get rid of corporate bonds entirely.
The price pressure looks set to persist for much longer than the BoE predicted in November, with the regulator tripling its forecast for wage growth this year to 3.75%.
The market forecasts that inflation will remain above 5% in a year, but the Bank of England believes that investors have priced in too many rate hikes and expects inflation to fall below its target of 2% to reach 1.6% in three years.
Four of the nine members of the Monetary Policy Committee wanted to raise interest rates by half a percentage point to 0.75%. However, the majority, including Central Bank Governor Andrew Bailey, voted for a 0.25 percentage point increase.
The Bank of England said consumer price growth, which stood at 5.4% in December, could hit a nearly three-decade high of 7.25% in April.
“Given the tightening of the labor market and signs of sustained domestic price and cost pressures, all members of the Committee concluded that at this meeting a bank rate hike is justified,” the minutes of the Bank of England meeting dated February 2 say.
The central bank also said it would start winding down its £895 billion ($1.2 trillion) quantitative easing program, and in doing so, get rid of corporate bonds entirely.
The price pressure looks set to persist for much longer than the BoE predicted in November, with the regulator tripling its forecast for wage growth this year to 3.75%.
The market forecasts that inflation will remain above 5% in a year, but the Bank of England believes that investors have priced in too many rate hikes and expects inflation to fall below its target of 2% to reach 1.6% in three years.