Bank of England Raises Interest Rates to Highest Level in 15 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. Consumer price data for April, which will be published later this month 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.
“Repeated surprises” about the resilience of economy and the tightness of the labor market have created “circumstances in which domestic price pressures risked becoming more persistent,” the policymakers who voted to raises interest rates said, according to the minutes of the meeting.
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.
Source: The New York Times
