Bank of England raises interest rate to 0.75% and warns inflation will hit 8%

The rate-setters on Threadneedle Street moved base rate from 0.5% to 0.75%, eschewing calls for a jump to 1%. That will probably come next month as the Bank battles inflation it has been criticised for being late to address.

Its Monetary Policy Committee voted 8-1 today to hike to 0.75%, with one member voting to keep rates where they are.

Inflation is presently at 5.5%, far ahead of the 2% target the Bank is supposed to hit.

The MPC said today it now expects inflation to go to 8% in the coming months and will “perhaps [be] even higher later this year.”

Kitty Ussher, chief economist of the Institute of Directors, said:“Our most recent data from our members shows, however, that expectations of future inflation are still rising, so it may be that further corrective action will be needed in the months ahead, depending on how the UK economy is affected by fast-moving events elsewhere in the world.”

There was some dissent on the rate rise. Deputy governor John Cunliffe voted to keep rates unchanged, a lone voice.

The nine-strong Monetary Policy Committee said more increases “might be appropriate in coming months, but there were risks on both sides of that judgement depending on how medium-term prospects evolved.”

“The economy had recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine was another such shock,” it wrote.

Paul Craig, portfolio manager at Quilter Investors, said: “The BoE had no choice but to keep raising rates. It is looking to build in some insurance now should there be a slowdown in economic growth or employment comes in worse than feared.

“With global risks and the Russia-Ukraine war having a significant economic impact, growth will be challenged and thus the Bank may need to reverse course later in the year.”

Ed Monk, associate director at Fidelity International, said: “Today’s rise in interest rates underlines how seriously policymakers are taking inflation, even if they stopped short of the half-point rise some had predicted.

“The Monetary Policy Committee members will know that some of the most painful price rises being felt by households - such as those on energy, fuel and food - will not be brought under control by raising borrowing costs, but the fact they are acting anyway suggests they are worried about price rises feeding through to higher wages and becoming more ingrained.”