Bank of England base rate climbs to 5.25%

Written by Michael Griffiths

03/08/2023

The Bank of England (BoE) has announced another base rate rise which takes interest rates to 5.25%, their highest level since the global financial crisis 15 years ago.

Rates have risen by 0.25 percentage points following the fourteenth meeting in a row in which the Bank’s Monetary Policy Committee (MPC) voted on a rate increase.

The MPC, which sets monetary policy to meet the Bank’s 2% inflation target, has been gradually raising interest rates since December 2021 when they sat at a historic low as 0.1%.

The Committee, which at its last meeting had opted for a 0.5 percentage point increase, this time voted by six to three in favour of the 0.25 percentage point rise. Two members had voted for a more aggressive 0.5 percentage point rise, while another member was in favour of maintaining the rate at 5%, as the MPC members continue their attempts to curb the rate of the UK’s high inflation.

Consumer Prices Index (CPI) inflation in the UK has come down from a peak of 11.1% in October last year and was at 7.9% in the 12 months to June, according to the Office for National Statistics (ONS), the lowest rate of price increases for more than year.

However, this is still almost four times the BoE’s 2% target and the key reason behind interest rates climbing once again. Food has been one of the biggest drivers of inflation and food inflation remains much higher than a year ago, although the pace of food prices did fall to 17.3% from May’s 18.3%, according to ONS data.

In its statement published today, the BoE said the MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy, including the “tightness of labour market conditions” and the “behaviour of wage growth and services price inflation”.

“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required,” the Bank also indicated.

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