The Bank of England’s Monetary Policy Committee (MPC), which sets monetary policy to meet the 2% inflation target, announced on 22 June its decision to raise UK interest rates by 50 basis points to 5%. This is the thirteenth successive time that the MPC has increased interest rates and they are now at their highest level since September 2008.

The MPC voted 7-2 in favour of raising interest rates to 5%. Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine Mann, Huw Pill and Dave Ramsden voted in favour of tightening policy by 50 basis points. Two members, Swati Dhingra and Silvana Tenreyro, voted against the proposition, preferring to maintain the bank rate at 4.5%. Megan Greene, Global Chief Economist for the Kroll Institute, is joining the Bank of England’s interest rate-setting committee, replacing Silvana Tenreyro from 5 July.

The minutes from June’s meeting suggest that the Bank of England voted to significantly increase interest rates despite forecasting that inflation will fall significantly this year due to lower energy prices. The Bank also expects food price inflation to fall further in coming months. The minutes noted that the MPC will continue to closely monitor indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further interest rate rises would be required.

Responding to today’s interest rate decision by the Bank of England’s MPC, Suren Thiru, Economies Director for ICAEW, said: “The decision to significantly hike interest rates will be a bitter pill to swallow for households struggling with spiralling mortgage bills and businesses grappling with soaring operating costs.

“Raising interest rates will do little to address current inflation worries given the significant time lag between rate rises and its full impact on the real economy. 

“With the majority of rate rises over the past year yet to filter through to borrowers and the broader economy, by continuing to tighten credit conditions, the Bank risks overcorrecting for past mistakes and unnecessarily risking recession.”

The next announcement on interest rates is on 3 August 2023.

Further reading: Minutes from the June MPC meeting