On Thursday August 2nd, Bank of England raised its lead interest rate, the so-called Bank Rate, from 5% to 5.25%. In its announcement of the increase, the Bank’s Monetary Policy Committee, MPC, explains:
At its meeting ending on 2 August 2023, the MPC voted by a majority of 6-3 to increase the Bank Rate by 0.25 percentage points, to 5.25%. Two members preferred to increase Bank Rate by 0.5 percentage points, to 5.5%, and one member preferred to maintain Bank rate at 5%.
This was the 14th increase in the Bank Rate since December 2021. The MPC predicts that it is not yet done: the summary explaining the latest Bank Rate increase predicts a “market-driven” three-year peak of the interest rate at 6%.
In its motivation for the decision, the MPC points to the June inflation rate for the British economy. At 7.9%, it was lower than the 8.7% recorded in May, but noticeably higher than the June inflation rates in the United States and the euro zone of 2.97% and 5.5%, respectively.
The decision by the Bank of England to continue its monetary tightening, exhibited in the Bank Rate increase, follows on the heels of the July 26th decision by the Federal Reserve to raise its Funds Rate to 5.33% (the midpoint of a flexible span of 5.25-5.5%). The day after, the European Central Bank’s Governing Council
decided to raise the three key ECB interest rates by 25 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased by 4.25%, 4.50% and 3.75% respectively
According to Sky News, the Bank of England anticipates that economic policy will successfully reduce inflation by half in the British economy before the end of this year. This will happen, Sky News notes, if interest rates remain high for an extended period of time.
