The Bank of England raises interest rates for the fifth time

The Bank of England said on Thursday it would raise the cost of borrowing by 25 basis points to 1.25%, despite concerns that higher prices are already putting pressure on households and impact on economic growth.

“Bank staff now expect GDP to fall 0.3% in the second quarter overall, less than expected at the time of the May report,” the Bank of England said in a statement.

“Consumer confidence has fallen further, but other measures of household spending appear to have held steady. Some indicators of business sentiment have weakened, although so far they have remained more resilient than indicators of consumer confidence and are consistent with positive underlying GDP growth. added.

The central bank said three members of its Monetary Policy Committee wanted to raise rates by 50 basis points to 1.5% – which would be the biggest increase in 27 years – but the other six fell short.

Soaring food and fuel prices have left millions of Britons in distress. worst cost-of-living crisis in decades. Annual consumer price inflation rose to 9% in April highest since 1992. Now the Bank of England expects inflation to exceed 11% in October.
Food research firm IDF said in a report released Thursday that food prices growth can exceed 15% during the summer. Export bans on key commodities, including palm oil from indonesiaand the war in Ukraine, which restricted exports from the region, are among the factors that fueled food inflation, the report said.

The UK economy is in a bleak state. GDP contracted 0.3% in April after falling 0.1% in March, according to the Office for National Statistics. Output fell in all three major sectors – services, manufacturing and construction – for the first time since January last year.

The decision of the Bank of England was made the next day after the US decision. The Fed has raised rates by 75 basis points to curb inflation. This is the biggest increase by the Fed since 1994.

George Buckley, chief UK and European economist at Nomura, told CNN Business that it is “understandable” that the BoE has taken a more modest rate hike than its US counterpart.

“Bank of England [thinks] that high current inflation will in itself hurt growth and ultimately lower future inflation,” Buckley said.

“The bank is struggling with rising inflation, but at the same time with the risk of a recession – so the disagreement in the committee right now about the scale of the necessary tightening is understandable,” he added.

Nicole Goodkind contributed to the report.

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