Bank of England raises rates as Ukraine war boosts inflation

The Bank of England raised its key interest rate on Thursday for the third time since December as it pushes ahead faster than other central banks in combatting a global wave of inflation that is set to accelerate following Russia’s invasion of Ukraine.

The bank boosted its key rate to 0.75 per cent after the war pushed oil prices to a 13-year high earlier this month. It comes a day after the United States’ central bank, the Federal Reserve, raised its benchmark short-term rate to 0.25 per cent to tame the worst inflation since the early 1980s.

The Bank of England, which voted 8-to-1 in favour of the increase, said the invasion of Ukraine has sparked “large increases” in prices for energy and other commodities, and is likely to worsen supply chain problems that have disrupted shipments of many raw materials. The bank said it now expects inflation to last longer and peak at a higher rate than it did before the war.

“Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow,” the bank said in a statement.

The Bank of England began raising rates in December amid concern about rising consumer prices as the world began to emerge from the coronavirus pandemic, increasing demand for energy and raw materials needed by industry.

Consumer price inflation accelerated to an annual 5.5 per cent in January, according to the Office for National Statistics.

Before Russia’s invasion of Ukraine, the Bank of England expected inflation to peak at around 7.25 per cent in April, more than three times its target of 2 per cent. The bank said on Thursday that it now expects inflation to accelerate to about 8 per cent by the end of June, and that it could rise further later this year.

Central banks in other countries may soon catch up to the Bank of England on interest rate hikes. The Federal Reserve signalled that it may raise rates six more times this year.

However, Turkey’s central bank kept rates unchanged on Thursday despite inflation soaring above 54 per cent. The European Central Bank also hasn’t touched rates, but last week announced an early exit from its economic stimulus efforts in a bid to combat record inflation in the 19 countries that use the euro.

AP