The Bank of England raised interest rates by half a percentage point on Thursday, a larger-than-expected move, as policymakers struggle to bring down Britain’s persistently high rate of inflation.
The central bank’s rate-setting committee lifted rates for a 13th consecutive time, to 5 percent, the highest since early 2008. The move is likely to intensify fears about the depth of Britain’s cost-of-living crisis, as homeowners prepare for jumps in their monthly repayments, after millions of households have already struggled to pay higher energy bills and for rising grocery prices for much of the past year.
The bank’s decision came a day after the latest inflation data underscored the bank’s challenge: Consumer prices rose 8.7 percent in May from a year earlier, the same as the previous month, instead of falling as economists had predicted.
Despite the Bank of England’s efforts so far, there is accumulating evidence that inflation will be harder to stamp out than previously expected. In the past week, data has shown that pay in Britain has increased faster than expected, inflation in the services sector has accelerated and food inflation is still near the highest level in more than 45 years.
The scale of the surprises in the data, especially for wage growth and services inflation, suggested a half-point rate increase “was required,” the minutes of the committee’s meeting said.
The data “indicated more persistence in the inflation process, against the background of a tight labor market and continued resilience in demand,” the minutes said.
The Bank of England’s decision to ratchet up its monetary policy tightening is in sharp contrast to some of its international peers. Last week, the Federal Reserve decided to hold interest rates steady, at a range of 5 to 5.25 percent, and the European Central Bank raised rates by a quarter point.