Bank of England raises interest rate by 0.5 percentage points to 2.25%

22 Sep '22

2 min read

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The Bank of England’s Monetary Policy Committee (MPC) has raised bank rate by 0.5 percentage points to 2.25 per cent and reduced the stock of purchased UK government bonds, financed by the issuance of central bank reserves, by £80 billion over the next 12 months to a total of £758 billion. Monetary policy will ensure that longer-term inflation expectations are anchored at the 2 per cent target, it said.

The August Monetary Policy Report notes ‘exceptionally large’ risks around its projections from both external and domestic factors, given the large increase in wholesale gas prices since May and the consequent impact on real incomes for UK households and on consumer price index (CPI) inflation.

The level of consumer spending in the third quarter this year is likely to have peaked and there have been some indications that the demand for labour is weakening, although the labour market nonetheless tightened further over the summer, with inactivity materially higher than anticipated, according to an official release.

Consumer services prices and nominal wages have continued to rise more rapidly than expected, although core goods price inflation has been lower than expected, it said.

Twelve-month CPI inflation fell slightly from 10.1 per cent in July to 9.9 per cent in August. Energy bills will go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10 per cent over the following few months, before starting to fall back, it added.

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