Daily Times

The Bank of England Thursday lifted its key interest rate by a half-point to five percent to tackle stubbornly high UK inflation despite such a move worsening a cost-of-living crisis.

The higher-than-expected hike to a 15-year high was the 13th increase in a row.

“There had been significant upside news in recent data that indicated more persistence in the inflation process,” the Bank of England (BoE) said minutes from the regular policy meeting.

The decision came one day after data showed UK annual inflation remained at 8.7 percent in May, defying expectations of a slowdown.

The UK inflation rate is the highest among G7 rich nations.

Prior to the data, markets had expected a smaller quarter-point increase. A half-point hike was in stark contrast to the Federal Reserve, which last week pressed pause on US rate hikes after a sharp easing in the country’s inflation. The European Central Bank last week raised its borrowing costs by a quarter point.

The Swiss and Norwegian central banks hiked their rates on Thursday.

British Prime Minister Rishi Sunak has made slashing the pace of price rises a priority for his Conservative government as it heads into a general election next year. Traders anticipate UK interest rates will hit six percent by the end of the year, likely pushing Britain into recession.

Sunak wants inflation reduced to five percent by the end of the year, or about half the level at the start of 2023.

The BoE began lifting its key interest rate from a record low of 0.1 percent at the end of 2021, with inflation starting to creep up as economies slowly emerged from lockdowns.

UK inflation went on to strike a 41-year peak at 11.1 percent in October on rampant energy bills, after major oil and gas producer Russia invaded Ukraine in early 2022.

Core inflation, which strips out food and energy costs, spiked in May to 7.1 percent — the highest in more than three decades.

Two of the bank’s nine policymakers voted Thursday for no change, arguing that “the energy price shock and other global cost-push shocks” such as surging food prices would continue to reverse this year.

Governor Andrew Bailey voted for the hike.