UK Central Bank Likely to Raise Interest Rate to 1.25%... Highest in 13 Years

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Hyunjung] The Bank of England (BoE), the central bank of the United Kingdom, is expected to raise its benchmark interest rate to 1.25% at this week's scheduled Monetary Policy Committee (MPC) meeting.

Bloomberg reported on the 12th (local time) that the BoE will attempt to ease the sharp rise in prices such as local oil prices in the UK by raising rates for the fifth consecutive year. If the UK’s benchmark interest rate is raised by 0.25 percentage points from the current 1%, it will exceed 1% for the first time in over 13 years since January 2009. The MPC, composed of nine monetary policy members, is scheduled to announce the related decision on the 16th.

Rice Kalaf, Chief Investment Analyst at AJ Bell, explained, "The BoE faces a serious test regarding the next rate decision," adding, "If it hesitates, the pound will weaken in the currency market." A decline in the pound’s value means that prices for gasoline, diesel, and other imports paid for in dollars by the UK will rise.

Previously, the MPC raised rates consecutively in December last year, and in February, March, and May. At last month’s MPC meeting, three of the nine members already expressed the opinion that rates should be raised to 1.25%.

Since then, forecasts have emerged that the UK’s growth will rank last among the major advanced economies in the G7 (United States, United Kingdom, Canada, Germany, Japan, France, Italy), adding more weight to the possibility of further rate hikes. According to the OECD announcement on the 8th, the UK is expected to grow 3.6% this year and then stagnate at 0% growth next year. This is a downward revision of 1.1 percentage points and 2.1 percentage points respectively from the forecast announced in December last year.

Alan Monk, JP Morgan economist, said, "The market continues to evaluate the possibility of a 0.5 percentage point increase," but observed, "However, given the MPC’s concerns about recession and inflation risks, it is expected to maintain the step of raising rates by 0.25% increments."

This content was produced with the assistance of AI translation services.