UK Interest Rates Inflate To 4.25% By Bank Of England, But Inflation Expected To Reduce

UK Interest Rates Inflate To 4.25% By Bank Of England, But Inflation Expected To Reduce

The Bank of England has increased interest rates for the 11th time in a row, taking Bank Rate to 4.25%, despite the trouble in the banking sector, reports said.

Announcing the move, the BoE also predicted that the surprise resurgence in inflation would probably fade fast. Some economists predict that interest rates could now be at their peak, but others suspect rates will rise again to 4.5% by this summer.

The decision split the MPC, with seven policymakers backing the rise and two voting to leave interest rates unchanged.

Chancellor Jeremy Hunt welcomed the move, saying it was important to get a grip on inflation. But his labour shadow, Rachel Reeves, says the rate rise would be a source of huge concern for families across the country.

The Bank of England raised its forecast for the UK economy in the second quarter of this year, thanks to measures in last week’s budget, and no longer expects a recession this year.

BoE governor Andrew Bailey has told pressmen: “We were really a bit on a knife edge as to whether there would be a recession… but I’m a bit more optimistic now.

Bailey also insisted that raising interest rate would bring inflation down to the Bank’s 2% target:

However, the Bank also warned that risk sentiment had reversed and volatility had picked up following the collapse of Silicon Valley Bank.

The rate increase is likely to cool the UK economy, with former MPC member Danny Blanchflower calling it a ‘disastrous error’.

The Unite union urged Britain’s biggest banks to pass on higher interest rates to savers, citing new figures showing they have made an extra £7bn by refusing to do so.