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Bank of England raises interest rate to 0.25% as inflation pressures mount

Bank of England raises interest rate to 0.25% as inflation pressures mount

Most economists had expected the BoE to keep Bank Rate at 0.1% due to a new surge in coronavirus cases.

Bank of England raises interest rate to 0.25% as inflation pressures mount (Photo: Reuters) Bank of England raises interest rate to 0.25% as inflation pressures mount (Photo: Reuters)

The Bank of England on Thursday became the world's first major central bank to raise borrowing costs since the coronavirus pandemic hammered the global economy last year, as it said inflation was set to hit 6% in April, three times its target level.

Most economists polled by Reuters had expected the BoE's Monetary Policy Committee to keep Bank Rate at 0.1% due to a new surge in coronavirus cases.

Sterling jumped by three quarters of a cent against the U.S. dollar to its highest since Nov. 30, and interest-rate sensitive two-year gilt yields rose by more than 7 basis points on the day to 0.56%, their highest since Dec. 1.

"The Committee continues to judge that there are two-sided risks around the inflation outlook in the medium term, but that some modest tightening of monetary policy over the forecast period is likely to be necessary to meet the 2% inflation target sustainably," the BoE said.

The nine-member MPC voted by 8-1 to raise Bank Rate to 0.25% from 0.1% with external member Silvana Tenreyro providing the only dissenting voice.

The BoE cut its growth forecasts for December and the first quarter of 2022 because of the spread of Omicron.

The MPC voted 9-0 to keep the BoE's government bond-buying programme at its target size of 875 billion pounds ($1.16 trillion). The BoE has also bought 20 billion pounds of corporate bonds.

Also Read: Bank of Maharashtra cuts interest rate on home loans to 6.40%

Also Read: RBI Monetary Policy Highlights: Repo rate unchanged; Inflation, GDP growth projections retained

Published on: Dec 16, 2021, 5:59 PM IST
Posted by: Tarab Zaidi, Dec 16, 2021, 5:53 PM IST