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Bank of England raises interest rate a half point to 3.5%

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The Bank of England said Thursday it's raising interest rates a half a point to 3.5% as the fight against inflation continues. Governor of the Bank of England Andrew Bailey pictured at the International Monetary Fund headquarters in Washington, D.C., on October. 14, 2022. Photo by Bonnie Cash/UPI | <a href="/News_Photos/lp/2a1505e58a65d88e7f6a472b447bcd88/" target="_blank">License Photo</a>

The Bank of England said Thursday it’s raising interest rates a half a point to 3.5% as the fight against inflation continues. Governor of the Bank of England Andrew Bailey pictured at the International Monetary Fund headquarters in Washington, D.C., on October. 14, 2022. Photo by Bonnie Cash/UPI | License Photo

Dec. 15 (UPI) — The Bank of England said Thursday it’s raising interest rates by half a percentage point to 3.5% as monetary policy continues to fight inflation.

The bank’s Monetary Policy Committee voted 6-3 to raise the Bank Rate and said additional interest rate hikes may be needed to achieve a sustainable drop in inflation back to target rates near 2%.

“The Committee has voted to increase Bank Rate by 0.5 percentage points, to 3.5%, at this meeting,” the Bank of England said in a statement. “The labor market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response.”

Britain’s Consumer Price Index shows annual inflation at 10.7% over the 12-month period ending in November. That’s down from 11.1%, so inflation is cooling, but it is far from the Bank of England’s 2% annual inflation target.

The Bank of England statement said that the “economy was expected to be in recession for a prolonged period and CPI inflation was expected to remain very high in the near term. Inflation was expected to fall sharply from mid-2023, to some way below the 2% target in years two and three of the projection.”

The bank’s Thursday statement said British GDP is expected to drop by 0.1% for the 2022 fourth quarter, which is 0.2% stronger than was expected in the bank’s November report.

Meanwhile, the British labor market remains tight with unemployment at 3.7%. Private sector pay growth for workers was 6.9%, 0.5% stronger than expected in the bank’s November report.

“CPI inflation is expected to continue to fall gradually over the first quarter of 2023, as earlier increases in energy and other goods prices drop out of the annual comparison,”

While the Energy Price Guarantee subsidy limited energy price inflation, the bank said household energy bills are still rising.

“There are considerable uncertainties around the outlook. The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary,” the Bank of England noted, as it projected how the bank expects the British economy to perform.

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