LONDON (AP) 鈥� The Bank of England raised interest rates by a quarter-percentage point Thursday, shrugging off pressure for a bolder move to combat price increases that have pushed .
The bank鈥檚 monetary policy committee voted 6-3 to boost its key rate to 1.25%, with the dissenters supporting a larger half-point increase. The U.S. Federal Reserve raising its benchmark rate by three-quarters of a percentage point to a range of 1.5% to 1.75%.
The United Kingdom's central bank said its decision was based on an effort to contain inflation without choking off economic growth, which was just starting to recover from the coronavirus pandemic when worldwide. But the bank indicated it was ready to act more decisively if in the economy.
鈥淭he scale, pace and timing of any further increases in bank rate will reflect the committee鈥檚 assessment of the economic outlook and inflationary pressures,鈥� the bank said. 鈥淭he committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.鈥�
The decision came as the bank said it expects inflation to peak at more than 11% in October, a full percentage point higher than its previous forecast. The consumer price index rose by 9% in April, the highest since 1982 and more than four times the bank鈥檚 2% target.
While the Bank of England began raising rates before its counterparts, it has now fallen behind the Fed in the worldwide fight against inflation fueled None of the bank鈥檚 five consecutive increases since December has been more than a quarter-point.
Some analysts criticized the bank for failing to act more decisively in the face of a worsening economic picture.
鈥淲ith the BoE seeing CPI at 11% 鈥� no less 鈥� in October, saying it will act forcefully if needed, and that it is particularly alert to more persistent inflation pressure 鈥� this begs the question: Why not hike more aggressively now? Why wait?" said Fawad Razaqzada, a market analyst at StoneX.
The war in Ukraine has boosted food and as the fighting of oil, , and . That is adding to price increases that began last year as the global economy started to recover from the COVID-19 pandemic.
Bank of England policymakers have been cautious about raising interest rates too quickly, arguing that many of the price pressures facing the British economy are external and beyond the bank鈥檚 control.
But price increases are now becoming embedded in the economy, fueling demands for higher wages and slowing economic growth as consumers and businesses curtail purchases.
Figures released this week by the Office for National Statistics showed that economic output stagnated in February and shrank by 0.1% in March, raising concerns that Britain may be headed for a recession.
The World Bank last week downgraded its outlook for the global economy and raised concerns about the combination of high inflation and sluggish growth last seen in the 1980s.
Nevertheless, a majority of the Bank of England鈥檚 monetary policy committee indicated that there had been 鈥渇airly limited鈥� economic developments since the bank鈥檚 last report in May, according to the minutes of their meeting.
The three members who voted for a bigger increase were more pessimistic about the strength of the causes of inflation.
鈥淭hese members also judged that monetary policy should lean strongly against risks that recent trends in pay growth, firms鈥� pricing decisions, and inflation expectations in the economy more widely would become more firmly embedded,鈥欌�� the minutes said. 鈥淔aster policy tightening now would help to bring inflation back to the target sustainably in the medium term, and reduce the risks of a more extended and costly tightening cycle later.鈥欌��
Danica Kirka, The Associated Press
