Making Financial Headlines · Page 5
The Bank Raises Rates and Keeps Inflation on the Guest List
· New York time
The Bank of England raised its key interest rate to 4% from 3.75%, its first increase in more than three years, and warned that inflation would near 5%. Most analysts had expected the rate increase, the BBC reported. CNBC said one policymaker voted for a rise to 4.25%. The actual decision and the individual vote are different figures. The bank raised the rate to 4%; the 4.25% figure describes one policymaker's preferred setting. The inflation warning is a forecast, not a report that inflation has already reached the projected level. Interest rates influence the cost of borrowing and the return on savings, making the decision important to households as well as financial markets. The move also forms part of the bank's response to its assessment of inflation. An increase in the policy rate is immediate as a decision, even though its wider effects take time to work through the economy. The bank has supplied a precise new rate and a less reassuring outlook for prices. That is central banking in miniature: one number can be changed at a meeting, while the other must be persuaded by the economy over time. The rate has arrived on schedule. Inflation has not promised to consult the same calendar.
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