Andy Bruce and David Miliken

London – On Thursday, the Bank of England increased interest rates for its third consecutive meeting. However, it softened its position on whether further increases are necessary.

Following Wednesday’s U.S. Federal Reserve decision to increase borrowing costs, eight of nine Monetary Policy Committee members (MPC), voted for an increase in Bank Rate from 0.5% to 0.75%.

Jon Cunliffe (Deputy Governor) voted to maintain rates at current levels, warning that there would be a huge hit in demand due to higher commodities prices. Reuters polled economic experts and expected a unanimous support for higher rates.

According to the BoE, inflation is expected to rise by a little over 8% in April (almost one percentage point more than what it predicted last month) and it has warned that it may peak later in this year.

The conflict in Ukraine has caused energy bills to rise, adding on to the 50% increase in next month’s electricity prices.

However, policymakers on Thursday rejected investors’ wagers that the Bank Rate would rise to around 2.5% by the end this year. They also toned down their language about the need to increase the rate.

The BoE stated that “the Committee deemed that some additional modest tightening may be appropriate in coming months but that there were risks both on the sides depending on how long-term prospects developed.”

MPC last month stated that additional modest tightening is “likely” to be necessary.

Most members of the committee stated that they increased rates in order to lower the chance of recent tendencies in inflation and pay growth becoming embedded in their expectations. The BoE surveyed businesses and found that they expect pay increases of 4% to 6% in 2019, compared to 2.5%-3.5% for 2021.

The BoE stated that Russia’s invasion into Ukraine could cause world inflation pressures to increase significantly in the coming months, and lead to disruptions in supply chains.

The squeeze on British households’ budgets is likely to be significantly greater than the forecast for last month. It was also expected to exceed the 30 year-old record.