Surging inflation and slowing economic growth continue to create a headache for the Bank of England (BoE). In a bid to curb inflationary pressures, BoE policymakers raised their key interest rate by 0.25 percentage points at their June meeting, taking the base rate to 1.25% – its highest level since early 2009. The rise – which was widely anticipated – was the BoE’s fifth rate increase, following rises in December, February, March, and May. Six members of the nine-strong Monetary Policy Committee (MPC) voted in favour of the 25-basis point increase, with three arguing in favour of a larger rise of 50 basis points in order to bring inflation back to its 2% target.

The annualised rate of consumer price inflation in the UK soared from 7% in March to 9% in April, reflecting the impact of higher energy costs. The BoE warned that inflation could rise above 11% in October as higher energy costs continue to take effect but pledged to “act forcefully” to address inflationary pressures. Meanwhile, the outlook for the UK economy has weakened and central bank officials now predict that the economy will contract by 0.3% during the second quarter. Consumer confidence has continued to weaken, and wage growth is failing to keep pace with the cost of living: average earnings (excluding bonuses) rose by 4.2% between February and April but fell by 2.2% when adjusted for inflation.