Bank of England to raise interest rates

Of the four who voted against, all said they would have preferred to increase the rate by 0.5 percentage points to 0.75%. 

Alongside this, the meeting outlined its projections for 2022 and 2023, with the bank expecting output to return to its pre-pandemic levels by the end of the first quarter of 2022. Based on the Labour Force Survey, it also expects the unemployment rate to fall from 4.1% to 3.8% in the first quarter of 2022. 

It does, however, anticipate UK GDP growth to slow to subdued rates. The main reason for that is the adverse impact of higher global energy and tradable goods prices on UK real aggregate income and spending. 

Over the coming year, underlying earnings is expected to strengthen to around 4¾%, figures which are consistent with the results of the Bank’s Agents’ annual pay survey. These wage increases will coincide with continued Consumer Price Index (CPI) inflation, which it expects to hit close to 6% in February and March, before peaking at around 7¼% in April. 

This projected peak is around two percentage points higher than expected in the November 2021 report. This overshoot mainly reflects global energy and tradable goods prices. Upward pressures on CPI inflation are expected to dissipate over time, with underlying wage growth also projected to ease from 2023. 

CPI inflation is projected to fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years.