The Bank of England raised interest rates on Thursday, its 12th consecutive increase, as Britain’s inflation rate remained stubbornly in the double digits.
Policymakers lifted the central bank’s key interest rate by a quarter of a percentage point to 4.5 percent, the highest since 2008. The long and aggressive policy tightening has continued as Britain experiences inflation that is higher than in the United States and Western Europe. Consumer prices rose 10.1 percent in March from a year earlier, the latest data showed, as food prices have risen more rapidly than expected, alongside prices of other goods.
The rate increase address “the risk of more persistent strength in domestic price and wage setting,” according to the minutes of the bank’s meeting this week.
Britain’s inflation rate is expected to fall more slowly than the central bank expected three months ago, primarily because food price inflation is forecast to decline slowly. In March, food prices were nearly 20 percent higher than a year earlier, the fastest pace of inflation in more than 45 years.
By the end of the year, the headline rate of inflation, which includes food and energy prices, is forecast to fall to 5.1 percent, the central bank forecast. Data published later this month for April is expected to show inflation beginning a more substantial slowdown because a surge in household energy bills will wash out of the annual inflation calculations. A year earlier, household energy bills surged more than 50 percent after the war in Ukraine pushed up wholesale prices.
As the Bank of England tries to force inflation down to its 2 percent target, good economic news could complicate its mission. Three months ago when the central bank last published its forecasts, it had a particularly pessimistic view of the British economy, predicting a five quarters of economic contraction and a mild recession. On Thursday, it unveiled the biggest upgrade to its economic forecasts in the bank’s history, because of lower wholesale energy prices and extra fiscal stimulus from the government. It no longer foresees any quarters of economic contraction.
Instead of a recession, this better-than-expected growth, with lower unemployment and rising consumer confidence, could allow some of the inflationary pressures in the economy to persist for longer than previously thought.
Still, the upgraded economic outlook is likely to offer only limited comfort to households and businesses. The forecast is weak: The economy would grow about a quarter of a percent this year, according to the bank’s projections.