The Bank of England on Thursday voted to lift interest rates for the third time since December, responding to a surge in inflation well beyond its target.
By an 8-to-1 vote, the central bank’s monetary policy committee lifted rates to 0.75% from 0.5%. Inflation in January had ticked up to a 30-year high of 5.5%, well above the bank’s 2% target.
One voter, Jon Cunliffe, wanted to hold rates at 0.5%.
Russia’s invasion of Ukraine has made what had been an already difficult inflation situation worse, given the U.K. is a net importer of key commodities. The supply-chain woes from the pandemic, and to a smaller degree Brexit, also have contributed to red-hot inflation.
“The effects of Russia’s invasion of Ukraine would likely accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes,” the central bank said.
Inflation may reach 8% in the second quarter, and possibly higher later in the year, it said.
The Bank of England decision comes a day after the U.S. Federal Reserve made its first of what it expects to be 11 interest-rate increases.
The pound GBPUSD, -0.27% fell to $1.3155 after the decision and has dropped 6% over the last 12 months. The yield on the 2-year gilt TMBMKGB-02Y, 1.365% was 1.40%, and slipped slightly after the decision.
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