The Bank of England Monetary Policy Committee (MPC) has voted by a majority of 8-1 to increase interest rates by 0.25% to 0.75%.

The MPC set monetary policy to meet the 2% inflation target in a way “that helps to sustain growth and employment”. At its meeting ending on 16 March 2022, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.25 percentage points, to 0.75%.

In the MPC’s central projections in the February Monetary Policy Report which were published before Russia’s invasion of Ukraine, UK GDP growth was expected to slow to subdued rates over the year. As a result, a margin of spare capacity was projected to open up and the unemployment rate to rise to 5% by 2025. CPI inflation was expected to peak at around 7¼% in April 2022 and to fall back to a little above the 2% target in two years’ time.

Inflation is expected to increase further in coming months, to around 8% in 2022 Q2 and “perhaps even higher later this year”.

Developments since the February Report are “likely to accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes”.

The invasion of Ukraine by Russia has led to further large increases in energy and other commodity prices. It is also likely to “exacerbate global supply chain disruptions, and has increased the uncertainty around the economic outlook significantly”. Global inflationary pressures will strengthen “considerably further over coming months”, while growth in economies that are net energy importers, like the UK, is “likely to slow”.

Turning to economic activity, UK GDP in January was stronger than expected in the February Report. Business confidence has held up and labour market activity data have remained robust. Consumer confidence has, however, fallen in response to the squeeze on real household disposable incomes.

The framework recognises that there will be occasions when “inflation will depart from the target as a result of shocks and disturbances”. The economy has recently been subject to a succession of very large shocks, including Russia’s invasion of Ukraine. “Should recent movements prove persistent, the very elevated levels of global energy and tradable goods prices, of which the UK is a net importer, will necessarily weigh further on UK real aggregate income and spending”.

“The Committee judges that some further modest tightening in monetary policy may be appropriate in the coming months, but there are risks on both sides of that judgement depending on how medium-term prospects for inflation evolve”.

The MPC will review developments as part of its forthcoming forecast round ahead of the May 2022 Monetary Policy Report.

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