MercoPress. South Atlantic News Agency

Fearing “pricing pressure” Bank of England raised rates to 5.75%

The Bank of England has raised interest rates from 5.5% to 5.75%, its fifth rate rise since last August and warned that inflation remains a danger, saying “most indicators of pricing pressure remain elevated”.

Some analysts have taken that to mean there may be a further rise this year. In its statement the Monetary Policy Committee said that output growth remained firm and appears to be evolving in line with the Committee's most recent projections. Credit and broad money continue to grow rapidly and the pace of expansion of the world economy remains robust. Further on the release points out that "inflation fell back to 2.5% in May and with lower gas and electricity prices inflation is likely to continue to fall back to around the 2% target in the course of this year". However, "although pay pressures remain muted the margin of spare capacity in business appears limited and most indicators of pricing pressure remains elevated". The Monetary Policy Committee believes that relative to the 2% target, "the balance of risks to the outlook for inflation in the medium term continued to lie to the upside. "Against that background, it further judged that an increase in the bank rate of 0.25% to 5.75% was necessary to meet the 2% target for inflation in the medium term". The previous interest rate change was last May 10 with a 0.25 points increase to 5.5%. Business groups estimate the Consumer Prices Index (CPI) was likely to return to the 2% target by the end of the year even without this increase. Inflation slowed to 2.5% in May from 2.8% in April. Firms are worried that rising interest rates will continue to increase the strength of the pound against the US dollar, thus making life more difficult for exporters. The pound is currently trading near a 26-year high against the dollar, (over 2 US dollars) and is unlikely to weaken significantly while rates are set to go higher, analysts said.