Interest rates: Bank of England hikes interest rates by 0.25% to 4.5% to hit highest level since 2008

The level for interest rates has hit its highest point in the UK since 2008

The Bank of England has raised interest rates to 4.5 per cent from 4.25 per cent.

In a report, the Bank of England’s Monetary Policy Committee (MPC) said: “In the modal forecast conditioned on market interest rates, and taking account of stronger paths for food prices and demand growth, CPI inflation is expected to decline somewhat less rapidly compared with the February report.”

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Speaking about the troubles that have hit banks in recent months, the statement added: “Risks remain but, absent a further shock, there is likely to be only a small impact on GDP from the tightening of credit conditions related to recent global banking sector developments.”

Members of the public walk past the Bank of England in a window as a 0.25 per cent hike in interest rates was announced. Picture: Dan Kitwood/Getty ImagesMembers of the public walk past the Bank of England in a window as a 0.25 per cent hike in interest rates was announced. Picture: Dan Kitwood/Getty Images
Members of the public walk past the Bank of England in a window as a 0.25 per cent hike in interest rates was announced. Picture: Dan Kitwood/Getty Images

The Bank said it expected the banking crisis would reduce US GDP by around 0.25 percentage points, but would have a much smaller impact in Europe.

It added: “The committee judges that growth over much of the forecast period will be materially stronger than in the February report.

“This reflects stronger global growth, lower energy prices, the fiscal support in the spring Budget and the possibility of lower precautionary saving by households than previously thought.”

The increase in the cost of living is expected to fall slower than previously thought, the Bank of England has warned, but the Government’s promise to halve inflation by the end of the year is still narrowly on track.

The Bank said it expected Consumer Prices Index (CPI) inflation to reach just over 5.1 per cent by the final quarter of this year, which would mean the UK Government only just manages to hit the target to bring inflation below 5.35 per cent.

It comes as the monthly increase in food prices has reduced slower than previously expected.

Meanwhile, economists at the Bank released a record upgrade to its gross domestic product (GDP) expectations.

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The Bank said it now expects GDP to be 2.25 percentage points higher at the end of its three-year forecast period than it said in February. That is the largest upgrade since 1997 when the Monetary Policy Committee (MPC) was formed.

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