UK inflation might rise to more than 8% next month the Bank of England warned today as the MPC raised the Bank Rate for a third straight month.
Economists had predicted the rise though the pound eased on the outcome as the minutes from the meeting suggested that the mood of the committee might have softened.
The Monetary Policy Committee voted 8–1 in favour of a 0.25% to 0.75% or the level before the pandemic.
"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,” said the Bank’s statement.
One member, Deputy Governor Sir Jon Cunliffe, voted against the rise saying the current surge in the cost of living for UK households would spark enough of a slowdown in Britain’s economy.
In February, four of the member had voted for a 0.5% rise but the soaring cost of commodities due to the Russian invasion of Ukraine and subsequent sanctions has seen prices of a range of commodities rocket higher.
Even so, many economists expect the Bank continue to raise rates this year irrespective of the Ukraine situation.
Dean Turner, at UBS Global Wealth Management, added: “The minutes highlight the ongoing inflationary pressures facing the UK economy and the tight labour market.
“Given this backdrop, we expect the Bank to hike rates again at its next meeting in May, taking base rates to the 1% mark.
"As things stand, there is a risk that they may go beyond this, with further increases in the second half of the year.
“However, the effect of any changes to rates will not be felt on the economy for a number of months and will do little to reverse surging energy prices which will have a greater bearing on the economic outlook for now.
The Bank of England’s move followed the first rise in US interest rates since 2018 overnight with the tone of the US central bank also indicating the days of its loose monetary policies are coming to an end.
Capital Economics’ chief economist Neil Shearing regards advanced economies like the UK and US as largely in the same boat and is wary of monetary policy doing too much heavy lifting in response to exogenous energy shocks.
“First, there’s not much that monetary policy can do to influence energy prices since they are set in global markets,” Shearing said.
“Second, while a rise in energy prices increases inflation in the short term, all other things being equal, the subsequent squeeze on real incomes is disinflationary over the medium term.”