London Daily

Focus on the big picture.
Saturday, May 31, 2025

Fifth consecutive hike as interest rate raised to 1.25% by Bank of England

Fifth consecutive hike as interest rate raised to 1.25% by Bank of England

There is a marked shift in the Bank's outlook and plan to tackle inflation as it signals there is a chance of more aggressive action ahead to help cool the pace of price growth in the economy.

The Bank of England has raised interest rates for the fifth time in a row to 1.25% and set the scene to act more "forcefully" ahead because of a mounting inflation threat.

There had been speculation of a more aggressive tightening after the sharpest rate hike since 1994 of 0.75 percentage points was imposed by counterparts at the US central bank last night.

But the UK's Bank rate was raised by 0.25 percentage points, as financial markets and economists had expected, continuing the gradual increases that began in December last year as the rate of inflation gathered pace.

However, the Bank said on Thursday it was now forecasting that the headline rate of inflation would top 11% in the autumn - a rise of almost 1 percentage point on the figure it had expected just last month to see at the year's end.


The rate-setting committee was split 6-3 on the rate hike vote, with the minority favouring a rise of 0.5 percentage points.

The BoE dropped its guidance from May when it said most committee members believed "some degree of further tightening in monetary policy may still be appropriate in the coming months".

Crucially, the minutes of the latest meeting read: "The committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response."

That was seen as guidance that, as far as Bank rate is concerned, there was now a greater chance of a 0.5% percentage point increase ahead.

As the Bank was giving its update, growing fears of a global recession were continuing to take a hold of financial markets, with stock markets in Europe widely down by more than 2.5% as the recent rush for safe havens reared its head again.

The reopening of economies after the pandemic and, latterly, the effects of Russia's war in Ukraine have been responsible for the bulk of the soaring costs across the world.

The UK's main inflation measure has since hit a 40-year high, leaving economic growth intensely choked by a cost of living squeeze that is only tipped to intensify as energy, food and fuel bills rise sharply.

The anticipated rise of more than £800 in the energy price cap due in October was largely responsible for the adjustment to the Bank's inflation forecast.

Its latest rate action will mean there is further pain for millions of mortgage holders on tracker or standard variable deals.

There is some small relief for savers as savings rates lag inflation considerably.

Although many of the price increases in the economy are outside the Bank's control, it is keen to keep a lid on rises in wages for fear that levels matching the pace of price increases will only make the inflation problem worse.

Its plea for wage restraint has come under attack from unions, which argue that plunging living standards are no fault of their members.

The rail network is set to become the first national battleground in strike action expected to start next week.

Chancellor Rishi Sunak, who has delivered two rounds of financial help to help with rising living costs to date, welcomed the Bank's move but the reaction from business groups was more cautious.

Alpesh Paleja, lead economist at the CBI, a business lobby group, said: "With inflation high and price pressures remaining acute, the Bank of England has rightly raised interest rates again to anchor inflation.

"But with the outlook looking weaker, monetary policy is walking an increasingly fine line between taming inflation and supporting economic activity.

"We expect only meagre economic growth ahead, as a historic squeeze on household incomes bites hard on spending.

"Monetary policy can only do so much, and must now be coupled with government action to prevent a deeper and more prolonged downturn."

Newsletter

Related Articles

0:00
0:00
Close
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
White House Press Secretary Criticizes Harvard Funding, Advocates for Vocational Training
France to Implement Nationwide Smoking Ban in Outdoor Spaces Frequented by Children
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
U.S. Justice Department Reduces American Bar Association's Role in Judicial Nominations
U.S. Department of Energy Unveils 'Doudna' Supercomputer to Advance AI Research
U.S. SEC Dismisses Lawsuit Against Binance Amid Regulatory Shift
Alcohol Industry Faces Increased Scrutiny Amid Health Concerns
Italy Faces Population Decline Amid Youth Emigration
U.S. Goods Imports Plunge Nearly 20% Amid Tariff Disruptions
OpenAI Faces Competition from Cheaper AI Rivals
Foreign Tax Provision in U.S. Budget Bill Alarms Investors
Trump Accuses China of Violating Trade Agreement
Gerry Adams Wins Libel Case Against BBC
Russia Accuses Serbia of Supplying Arms to Ukraine
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
Chinese Woman Dies After Being Forced to Visit Bank Despite Critical Illness
President Trump Grants Full Pardons to Reality TV Stars Todd and Julie Chrisley
Texas Enacts App Store Accountability Act Mandating Age Verification
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Vatican Calls for Sustainable Tourism in 2025 Message
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Trump Threatens 25% Tariff on iPhones Amid Dispute with Apple CEO
Putin's Helicopter Reportedly Targeted by Ukrainian Drones
Liverpool Car Ramming Incident Leaves Multiple Injured
Australia Faces Immigration Debate Following Labor Party Victory
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
Macron Dismisses Viral Video of Wife's Gesture as Playful Banter
Cleveland Clinic Study Questions Effectiveness of Recent Flu Vaccine
Netanyahu Accuses Starmer of Siding with Hamas
Junior Doctors Threaten Strike Over 4% Pay Offer
Labour MPs Urge Chancellor to Tax Wealthy Over Cutting Welfare
Publication of UK Child Poverty Strategy Delayed Until Autumn
France Detains UK Fishing Vessel Amid Post-Brexit Tensions
Calls Grow to Resume Syrian Asylum Claims in UK
Nigel Farage Pledges to Reinstate Winter Fuel Payments
Boris and Carrie Johnson Welcome Daughter Poppy
×