The Bank of England (BoE) has raised the key interest rate by a quarter of a percentage point to the highest level in years in the United Kingdom.
The central bank aims to combat inflation, which remains at a high level despite the fastest pace of interest rate increases in three decades. By raising the interest rate, borrowing becomes more expensive, and less money is available, which should help ease prices.
The British central bank began raising interest rates in December 2021, being one of the first central banks to do so, and has now increased rates fourteen times in a row, bringing it to a level of 5.25 percent. This is the highest interest rate in over fifteen years. The interest rate hike was in line with economists’ expectations. In the previous decision in June, the interest rate was raised by half a percentage point.
The policymakers at the central bank were not unanimous about the interest rate decision. Six out of nine board members voted for a quarter-point interest rate increase. Two preferred a half-point interest rate hike, and one board member was against further rate increases. The BoE also stated its determination to bring inflation back to the target of 2 percent, leaving the door open for more interest rate hikes. The central bank also expects the interest rate to remain high for an extended period.
Although the British inflation has slightly decreased in recent months, prices are still rising significantly, and many households in the country are being hard-hit by the higher cost of living.
In June, the British inflation rate decreased to 7.9 percent, down from 8.7 percent in May. The price increases in the country are still considerably higher than in other major economies such as the Eurozone and the United States.
