The Bank of England has hiked interest rates for the third time since December

The Bank of England voted Thursday to raise interest rates for the third time since December, responding to inflation rising well above its target.

In an 8-to-1 vote, the central bank’s Monetary Policy Committee raised interest rates from 0.5% to 0.75%. Inflation had risen to a 30-year high of 5.5% in January, well above the bank’s 2% target.

One voter, Jon Cunliffe, wanted interest rates to remain at 0.5%.

Russia’s invasion of Ukraine has exacerbated an already troubled inflationary picture as the UK is a net importer of key commodities. Supply chain issues from the pandemic, and to a lesser extent Brexit, have also contributed to blistering inflation.

“The impact of the Russian invasion of Ukraine would likely amplify both the peak in inflation and the negative impact on economic activity by increasing pressure on household incomes,” the central bank said.

Inflation could hit 8% in the second quarter and possibly be higher later in the year, it said.

The Bank of England’s decision comes a day after the US Federal Reserve made its first of what is expected to be 11 rate hikes.

the pound GBPUSD,
fell to $1.3155 after the decision and is down 6% over the last 12 months. The return on the 2-year Gilt TMBMKGB-02Y,
was 1.40% and slipped slightly after the decision.

The weakness was explained by saying that “further moderate monetary tightening may be warranted in the coming months, but there were risks on either side of that view depending on how the medium-term inflation outlook evolved,” the Bank of England said previously that tightening is probably appropriate. The Bank of England has hiked interest rates for the third time since December

Brian Lowry

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