The Bank of England’s Monetary Policy Committee (MPC), which sets monetary policy to meet the 2% inflation target, announced on 23 March its decision to raise UK interest rates by 25 basis points (bps) to 4.25%. This is the 11th successive time that the MPC has increased interest rates. 

The MPC voted 7-2 in favour of raising interest rates to 4.25%. Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine Mann, Huw Pill and Dave Ramsden voted in favour of the proposition. Two members (Swati Dhingra and Silvana Tenreyro) voted against the proposition, preferring to maintain Bank Rate at 4%. Notably, Catherine Mann dropped her vote for a 50bps hike in February to 25bps at this meeting. 

Minutes from the latest meeting suggest that the Bank of England voted to increase interest rates despite forecasting that inflation will decline considerably this year. This is partly due to the freeze on household energy bills. It also expects nominal wage growth to be weaker than it had previously expected. The bank also no longer expects a technical recession in 2023 with UK GDP now projected to be broadly flat around the turn of the year. UK GDP is now expected to increase in the second quarter of 2023, up from the 0.4% decline previously forecast.

The next announcement on interest rates is on 11 May 2023.

Responding to today’s interest rate decision by the Bank of England’s Monetary Policy Committee, Suren Thiru, Economies Director for ICAEW, said: “The decision to raise interest rates looks a little ill advised against a backdrop of economic uncertainty and financial market volatility.

“The Bank of England remains behind the curve on interest rates. It was too late to tighten monetary policy when inflation surged, and now it’s still hiking rates despite a flatlining economy and financial market turbulence. 

“While we’re already seeing the negative impact of rapidly raising rates on financial stability, the lagged impact on the real economy means that damage to households and businesses is yet to be fully felt.

“With a flagging economy and lower energy costs still set to drive a significant fall in inflation this year, despite February’s surprise increase, the case for cutting interest rates is only likely to grow.”

• For further information, read: Minutes from the March MPC meeting