Bank of England raises Interest Rates by 25 basis points

The Bank of England (BoE) recently made the decision to raise interest rates by 25 basis points to combat high inflation and concerns surrounding the UK banking system.

The Bank of England (BoE) recently made the decision to raise interest rates by 25 basis points to combat high inflation and concerns surrounding the UK banking system. In February, the UK saw an unexpected rise in inflation, which spiked to 10.4% year-on-year. To aid in stabilizing the economy, the Monetary Policy Committee (MPC) supported an increase in the bank rate to 4.25%.

Despite the increase in interest rates, the BoE estimates that the extra fiscal support announced in Chancellor Jeremy Hunt's Spring Budget will contribute 0.3% to UK GDP growth in the coming years. Moreover, the Energy Price Support (EPG) policy will remain at £2,500 per household and will be extended for another three months from April, which is likely to keep real household income unchanged in the near term.

Bank of England raises Interest Rates by 25 basis points ph: instagram@hmissa

The bank emphasized that the increase in the core consumer price index (CPI) was largely due to fluctuations in clothing and footwear prices. The MPC report also touted that global growth will pick up faster than expected, providing some relief amid the current economic concerns. Following the announcement, the pound rose against the dollar before stabilizing around a 0.2% difference.

Meanwhile, other central banks worldwide are also raising interest rates. The US Federal Reserve (Fed) and the Swiss National Bank (SNB) both raised interest rates by 25 and 50 basis points respectively. The European Central Bank (ECB) also raised rates by 50 basis points recently amid the banking industry's turmoil, which stemmed from the collapse of SVB and the emergency rescue of Credit Suisse.

Despite these events, many analysts agree that the UK's banking system remains resilient. The Financial Policy Committee (FPC) assessed that the UK banking system still "maintains abundant capital, high liquidity, and is ready to support the economy in a variety of situations, including periods of higher interest rates."

Overall, the BoE's decision to raise interest rates was a necessary measure to combat inflation and support the economy. The UK banking system's continued ability to remain resilient further provides assurance in providing support during these uncertain times.