London, Feb. 3 (BNA): The Bank of England on Thursday raised interest rates for the second time in three months, putting the United Kingdom far ahead of the rest of Europe and the United States in the move to tame spiraling inflation that is putting pressure on consumers. and companies.
The bank’s monetary policy committee voted 5 to 4 to increase the key rate to 0.5% from 0.25%, with opposition members calling for an even larger increase, according to the Associated Press.
It also voted unanimously to begin reducing the bank’s holdings of British government debt and corporate bonds, which it created to support the economy since the global financial crisis more than a decade ago.
UK consumer prices rose 5.4% in the year to December, the highest rate of inflation in nearly 30 years. And the pressure will only get worse: Britain’s energy regulator on Thursday announced a 54% increase in household gas and electricity prices in April, the same month income taxes are set to rise 1.5%.
The US Federal Reserve said last week that it will end its asset purchases in March and is likely to raise interest rates for the first time in more than three years.
Monetary policymakers around the world are trying to contain inflation fueled by high energy prices and supply shortages as the global economy recovers from the COVID-19 pandemic.
Higher rates increase the amount borrowers pay on everything from mortgages to credit card purchases, reducing spending and slowing price increases. Lower rates tend to encourage spending and increase economic growth.
The Bank of England said it expects inflation to peak at around 7.25% in April. Based on this assumption, investors are betting that the bank will raise the key rate to 1.5% by mid-2023.
The bank is adjusting interest rates as it tries to keep inflation below 2% while also boosting economic growth.
Meanwhile, the bank said it will gradually start reducing its holdings of UK government bonds and corporate debt held by financial institutions, initially by not reinvesting the money it receives from maturing bonds.
Those purchases began in 2009 to inject money into the economy during the global financial crisis. Policy makers were forced to resort to asset purchases after they cut interest rates to 0.5%, limiting their ability to use interest rates to stimulate economic growth.
With interest rates remaining near record lows, the bank continued to buy bonds during the shocks of Brexit and the pandemic.
It is now the largest single holder of British government debt, holding 875 billion pounds ($1.19 trillion) of government bonds, known as government bonds.
Government bond sales will not start until the bank rate rises to 1%. But the Monetary Policy Committee said the bank should start selling its £20 billion stock of corporate bonds until the end of next year.
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