Bank of England raises interest rates to pre-pandemic levels Business

“The global economic outlook has deteriorated significantly following Russia’s invasion of Ukraine in late February,” the MPC said in its meeting minutes.

This “likely to exacerbate global supply chain disruptions and has significantly increased uncertainty around the economic outlook.”

Domestically, Britain’s economy recovered from the omicron stronger than expected at the start of the year, the MPC said, but soaring inflation is taking its toll.

Even before the war “there had already been tentative signs that the squeeze in real disposable incomes was beginning to weigh on the household sector”, with consumer confidence falling and businesses fearing it would undermine spending.

Companies told Bank officials they were particularly concerned about shortages of materials for automotive and electronics manufacturing.

Eight of nine MPC members voted for the 0.25 percentage point rate hike, warning that they want to prevent imported inflationary pressures from becoming more entrenched in the wider economy, even if the shock of global markets is “something that monetary policy could not prevent”.

“Since the previous MPC meeting, indicators of financial market, household and corporate inflation expectations have risen,” the policymakers said.

“Monetary policy should be tightened at this meeting to reduce the risk that recent trends in nominal wage growth, domestic prices and inflation expectations will strengthen and become entrenched, and thus help to ensure that the inflation is permanently at the medium-term objective.”

Sir Jon Cunliffe, Deputy Governor and the only MPC member to vote against a rate hike, expressed concern about the severe economic shock to commodity markets and the war in Ukraine.

He highlighted “the very significant negative impacts of rising commodity prices on real household income and activity. These appear to have been exacerbated by Russia’s invasion of Ukraine,” the minutes of the meeting read.

“The invasion could also increase uncertainty and diminish consumer and business confidence,” prompting him to wait and see before making a decision on higher rates.

It comes after the Federal Reserve raised U.S. interest rates for the first time since 2018 as authorities raised inflation forecasts and cut GDP projections due to the war and its impact on the economy. financial markets and the global economy.