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Base rate increased to 0.75 per cent

  • 17/03/2022
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Base rate increased to 0.75 per cent
The Bank of England has raised the base rate to 0.75 per cent as expected.


Last week, economists said there was a 100 per cent chance that the rate would go up at the March meeting, which took place yesterday.

Members of the Monetary Policy Committe (MPC) voted to raise the base rate to 0.75 per cent, with Jon Cunliffe choosing to maintain it at 0.5 per cent.

Last month, the decision to increase the rate to 0.5 per cent was split five-four between the committee, with the minority voting to raise it further to 0.75 per cent. Members Jonathan Haskel, Catherine Mann, Michael Saunders and Dave Ramsden voted to raise the rate. 

Widely predicted, the move comes as the Bank tries to curb soaring inflation amid the pandemic and cost-of-living crisis. 

This is now the third increase from the historic low rate of 0.1 per cent in December 2021. It rose to 0.25 per cent in December before climbing to 0.5 per cent in February 2022. 

However, the base rate could rise even further, with forecasts suggesting it could reach 1.25 per cent by the end of the year. 

The MPC said its projections in its February report, which was published before Russia’s invasion of Ukraine, expected the UK’s GDP growth to slow over the year. CPI inflation was expected to peak at around 7.5 per cent in April before falling a little above the two per cent target in two years, then dropping below target in three years.

However, developments since these predictions are now expected to accentuate the peak in inflation and the adverse impact on economic activity.

Inflation is now expected to rise further in coming months to around eight per cent by Q2 and possibly higher by the end of this year.

It also said if the rise in energy prices is sustained, Ofgem’s price cap could be “substantially higher” when it is reset in October. This could also push CPI inflation higher above the previously predicted peak which was expected in April.

The MPC said: “That judgement also reflects that monetary policy will act to ensure that longer-term inflation expectations are well anchored around the two per cent target.”

“Given the current tightness of the labour market, continuing signs of robust domestic cost and price pressures, and the risk that those pressures will persist, the Committee judges that an increase in bank rate of 0.25 percentage points is warranted at this meeting,” it added.

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