The Bank of England is set to impose another interest rate hike on the UK economy today, the 12th consecutive increase in its battle to curb rampant inflation.
Both financial markets and economists widely expect a 0.25 percentage point rise to 4.5%.
The Bank Rate had stood at 0.1% in December 2021 before the tightening cycle began to tackle the pace of price rises, which were initially caused by economies getting back in gear after the COVID pandemic.
Russia’s invasion of Ukraine the following February then exacerbated the inflation problem, with soaring energy costs piling additional misery on western nations.
Those considerable extra costs, not only faced by households, are still filtering through in the form of stubborn inflation for many goods and services despite wholesale energy costs easing in recent months.
The latest official figures showed the headline consumer prices index (CPI) measure at 10.1% – fed by the highest grocery inflation for 45 years.
The bank will have also been concerned that higher-than-expected wage increases will embed inflation in the economy over the months ahead.
But there is good news on the CPI number just around the corner.
The inflation data for April is set to strip out the effects of the leap in household energy bills seen in April 2022 while fuel, which was also on the march at that time, is now well down on the levels seen in the same month a year ago.
Some economists predict a CPI number for April below 8% just because of the energy impact alone.
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This does not mean that prices are necessarily coming down and the cost of living crisis is over.
It is just that the contributions to inflation from the energy components are not so severe when it comes to measuring the pace of price increases over a 12-montn period.
Raising Bank Rate is a tool to reduce demand in the economy – to cool activity and help inflation…
