Bank Rate raised again

2nd March 2022

Following a meeting held in mid-March, the BoE’s nine-member Monetary Policy Committee (MPC) voted by an 8-1 majority to raise Bank Rate from 0.5% to 0.75%. This was the third meeting
in a row that the MPC had signalled a tightening of monetary policy, taking the Bank’s main interest rate back to its prepandemic level.

Policymakers cited a strong labour market and continuing signs of ‘robust domestic cost and price pressures’ as key reasons for the hike. Minutes to the meeting also noted that Russia’s invasion
of Ukraine had led to ‘further large increases in energy and other commodity prices including food prices.’ As a result, the BoE now expects inflation to reach ‘around 8% in April,’ almost a full
percentage point higher than it forecast in February and four times its 2% target figure.

While the minutes did say that ‘some further modest tightening in monetary policy may be appropriate in the coming months’ they also pointed to concerns about the outlook for growth as
households struggle with a squeeze on incomes. Indeed, analysts noted a more dovish tone than was evident in the previous set of minutes, with a distinct softening of the language on the need for
future rate hikes.

Data subsequently released by the Office for National Statistics (ONS), however, showed that price rises continue to exceed analysts’ expectations. In the 12 months to February, the rate of
inflation as measured by the Consumer Prices Index, surged to a 30-year high of 6.2%. This was significantly up on the previous month’s rate of 5.5%, and 0.3% higher than the median forecast
in a Reuters poll of economists.