Bank of England hikes rates for the fifth time in a row as inflation soars

The Bank of England on Thursday implemented a fifth consecutive hike to interest rates as it looks to rein in soaring inflation.

The Monetary Policy Committee voted 6-3 to increase the Bank Rate by 25 basis points to 1.25 percent, with the three dissenting members voting for a 50 basis point hike to 1.5 percent.

The committee said in a statement Thursday that it will “take the actions necessary to return inflation to the 2 percent target sustainably in the medium term,” with the scale, pace, and timing of any further hikes depending on the economic outlook and inflationary pressures.

The pound dropped against the dollar shortly after the announcement but rebounded to gain 0.4 percent and trade above the $1.22 handle by mid-afternoon.

Policymakers face the unenviable task of bringing consumer prices back under control against a backdrop of slowing growth and a rapidly depreciating currency, while the U.K. faces a major cost of living crisis.

At its May meeting, the Bank raised its base rate by 25 basis points to 1 percent, its highest level for 13 years, but warned that the British economy risks falling into recession.

Since then, fresh data has shown that U.K. inflation soared to a 40-year high of 9 percent annually in April as food and energy prices spiraled.

The Bank now expects inflation to rise to “slightly above 11 percent” in October, reflecting higher projected household energy prices following an expected further increase to the U.K. energy price cap.

Inflation is surging worldwide due to spiking costs of food and energy, which have been exacerbated by the war in Ukraine and supply fears in agricultural commodities.

Supply chain disruptions and demand shifts as a result of the pandemic have also driven up tradable goods prices.

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