Bank of England raises interest rates to 0.75%

The Bank of England’s Monetary Policy Committee has voted to increase interest rates by 0.25 percentage points to 0.75%.

The rise is the second increase in interest rates in 2022, and restores the base rate to its pre-pandemic level. The rate is now back at its joint highest level since March 2009 at the height of the credit crunch.

The move is a further attempt by the UK’s central bank to curb rising inflation to back below its 2% target. CPI inflation had been expected to peak at 7.25% as a result of rising energy and food prices.

In making their decision to raise the Bank of England base rate, the Monetary Policy Committee warned that the ongoing Russian invasion of Ukraine could see inflation rise further. Economic sanctions on Russia are expected to see oil and gas prices continue to rise; Ukraine is also a major exporter of agricultural staples such as wheat and sunflower oil and disruption to their supply is also like to drive prices up further.

The Bank of England welcomed that UK GDP data proved stronger than expected in February, with the economy holding up well in the face of current pressures. However, its economists also warned that as a net energy importer, a protracted period of rising prices could see growth slow, with consumer confidence already down in response to squeezed household incomes.

The Bank of England’s rate increase also followed a similar decision by the USA’s Federal Reserve, which also opted this week to raise interest rates by 0.25 percentage points, the first rise by the American central bank since 2018.

The small rate rise is unlikely however to have significant impact on interest rates of financial products at this stage unless continued rate increases are sustained throughout the year as high inflation continues.

HMRC has also confirmed that repayment interest rate for late tax payments will remain at 0.5%.