LONDON: The Bank of England hiked interest rates Thursday by a quarter-point to 0.75 percent to help tame high inflation, and upgraded its 2019 economic growth forecast despite Brexit fears.
The British central bank’s nine-member monetary policy committee voted unanimously to raise rates for only the second time since the global financial crisis, but left unchanged its quantitative easing stimulus.
“A 0.25 percentage-point increase in bank rate was warranted at this meeting to return inflation sustainably to the target,” the BoE said in minutes from the meeting.
Borrowing costs have now risen above the symbolic barrier of 0.50 percent for the first time since March 2009, having already been hiked last November to combat Brexit-driven inflationary pressures.
The 12-month inflation rate has held stubbornly above the BoE’s official 2.0-percent for the last 17 months, as Brexit weighted on the pound and pushed up the cost of imported goods.
The pound edged higher in response to Thursday’s news, which was in line with market expectations, while London’s benchmark FTSE 100 shares index stayed put at around 1.20 percent lower.
“The committee judged that, were the economy to continue to develop broadly in line with its … projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2.0-percent target at a conventional horizon,” added the minutes.
“All members agreed that any future increases in bank rate were likely to be at a gradual pace and to a limited extent.”
Rising interest rates are a boon for savers but ramp up the cost of credit for consumers and companies.
The BoE meanwhile forecast that the UK economy would expand by 1.8 percent next year, despite the nation’s scheduled withdrawal from the European Union, up from its previous forecast of 1.7 percent.
At the same time however, the bank left unchanged its 2018 forecast of 1.4 percent growth.
Britain is due to leave the EU next March, but the process has been plagued by stalled trade talks with Brussels.
Britain was the only G7 economy to experience a slowdown in 2017, the Office for National Statistics highlighted earlier this week.
However, it also noted that growth has been more resilient than was initially expected after the Brexit referendum in 2016.—AFP