The bank’s Monetary Policy Committee (MPC) voted 5-4 to raise interest rates from 0.25 percent to 0.5 percent – the first consecutive hike since 2004, after a quarter-point hike at its last meeting in December. Four of the nine members called for a steeper rate hike to 0.75 percent to curb rampant inflation. Former Bank of England Lieutenant Governor Sir John Gieve warned that the huge hike “is going to get worse”.
Speaking to LBC, Sir John said: “Average prices for the average household have risen by five and a half per cent in the last year and that number is only getting worse.
“The Bank of England has just said it expects to hit seven by spring.
“This is the highest inflation since 1992, 30 years.”
He added: “People will find that things are more expensive.
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“The main drivers of inflation last month were energy, gas and electricity.
“We saw massive increases yesterday which will arrive in April but in fact goods have risen.
“Food prices have risen and there have been shortages in many markets, which has caused commodity prices to rise.
“It’s not just about energy, it’s spread throughout the economy.”
It came as the bank warned that skyrocketing energy prices will push inflation to a staggering 7.25 percent in April, the highest since August 1991.
In a grim forecast for struggling households, the bank said disposable income after taxes and inflation will fall about 2 percent — the worst impact since the bank began keeping records in 1990.
Ofgem’s 54% increase in energy price cap to around £1,971 in April is the driving force behind the inflation forecast hike, with the bank forecasting a further 10% increase in the cap this October.
However, the forecasts do not take into account the Chancellor’s package of measures announced on Thursday, which will offer £350 in support to the majority of UK households.
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Bank Governor Andrew Bailey said the government support would help take the pressure off budgets.
However, responding to concerns that the bank’s rate hike comes at the worst possible time for households, he said: “If we don’t take these measures, it (inflation) would be even worse.”
He added: “We didn’t raise interest rates today because the economy is rushing away.
“An increase in the key interest rate is necessary because inflation is unlikely to return to target without it.”