The Bank of England (BoE) has boosted UK interest rates to 1%, the highest level in 13 years, as it fights to keep inflation under control. Despite troubling indicators that the British economy is faltering, the Monetary Policy Committee (MPC) voted 6-3 to raise the baseline borrowing cost for the fourth time in a row.

Rates have now reached their highest level since February 2009, when they were raised to combat the recession brought on by the 2008 financial crisis.

The Bank’s governor, Andrew Bailey, stated that the central bank faced a “narrow road” in navigating the combined threats of inflation and recession confronting the British economy. He said that the influence on supply chains from the Covid shutdowns in China and the surge in energy costs since Vladimir Putin’s invasion had exacerbated the inflation shock.

Since the pandemic’s beginning, when interest rates were reduced to a historic low of 0.1%, rates have been raised to 0.25%, 0.5%, and finally 0.75% before Thursday’s announcement.

Inflation rose to a new 30-year high of 7% in March, driven by rising energy, petrol, and food costs, considerably over the Bank’s goal of 2%.

Threadneedle Street now expects inflation to have increased in April after the energy price cap increased by 54%, warning that consumer prices might rise by 10% later this year. According to market analysts, energy costs are expected to rise higher in October.

“I recognise the difficulty this will create for many people in the UK, especially those on low incomes, frequently with little or no savings, who are disproportionately affected by rises in the pricing of essential necessities like food and electricity,” Bailey added.

The pound sank dramatically following the rate announcement as the city responded to Britain’s deteriorating economic outlook. In the foreign exchange markets, sterling fell by about 3 cents versus the dollar and more than a cent against the euro.

While inflation provides minimal benefit to consumers, it can provide a boost to investors who own assets in inflation-affected areas. Those who own shares in energy businesses, for instance, may see their stock prices climb if energy costs rise.

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