Like many central banks around the world, the Bank of England is grappling with a surge in inflation triggered by the stimulus-aided rebound from the coronavirus pandemic, supply-chain disruptions, and soaring energy prices.
Inflation in the UK is set to hit 11% later in 2022 as the recent surge in energy prices, driven by Russia's invasion of Ukraine, triggers a sharp rise in the country's energy price cap, the BoE said. CPI inflation stood at 9% in April, a 40-year high.
BoE has now raised interest rates by 25 basis points or 0.25 percentage points, the latest step in its ongoing effort to tame UK inflation, which it said would hit 11% later this year. The move took the BoE's main interest rate to a 13-year high of 1.25%, from 1% previously. Rates stood at just 0.1% as recently as December.
The Federal Reserve raised interest rates by 75 basis points for the biggest increase since 1994, less than a week after data showed US inflation surged to a 41-year high in May. The pound fell against the dollar after the BoE's decision, and was last down 0.89% to $1.206, from around $1.215 prior to the announcement. London's FTSE 100 stock index trimmed some losses, and was last down 2.38%.
On top of rampant inflation, the BoE is dealing with an economy that is slowing sharply as rising prices and tax increases drag on growth. Gross domestic product unexpectedly shrank in both April and March, prompting many economists to say the UK is effectively already in a recession.
