Mumbai:
The Bank of England (BoE) raised the Bank Rate its benchmark interest
rate to a six-year high of 5.5 per cent as inflation rose fastest in a
decade amidst high consumer spending and record employment. This is the fourth
time that BoE raised its key rate since the start of August 2006.
The European Central
Bank (ECB), meanwhile, kept its benchmark interest rate at 3.75 per cent.
BoE''s nine-member policy
committee increased the Bank Rate by 25 basis points to 5.5 per cent, the highest
since April 2001, pushing borrowing cost in the UK the highest among the Group
of Seven nations. The
G7 clubs Canada, the United States, France, Germany, Italy, Japan and the UK.
At 5.5 per cent, UK''s
key interest rate is higher than the 5.25 per cent in the US. Canada''s key rate
is 4.25 per cent and Japan has the lowest rate at 0.5 per cent.
Bank of England governor
Mervyn King had promised to return inflation to the 2 per cent target from 3.1
per cent in March. UK''s inflation rose to its highest since 1997 in March this
year and the bank said inflation risks remain. The
rate moves so far have failed to cool the British property market or consumer
spending. House-price
inflation was 10.9 per cent in the quarter through April, the second-highest rate
in the past two years. Retail sales rose for a second month in March.
A quarter-point increase
in Bank Rate should raise the monthly payment on a 200,000-pound mortgage by 30
pounds. Payments will now be about 120 pounds more a month than before the interest-rate
increase in August, according to the lenders group. In
London, banks, including Barclays Plc, the UK''s third-biggest and Lloyds TSB Group
Plc, the fifth-largest, have announced plans to raise their own interest rate
following the central bank''s decision. Meanwhile,
the pound, which hit a 25-year high of $2.0133 on April 18, maintained at $1.9876
in pre- and post announcement trading. Traders,
however, expect another increase. The implied rate on the September interest-
rate futures contract was unchanged at 5.94 per cent. The contract, which settles
to the three-month London inter-bank offered rate for the pound, averaged about
15 basis points more than the central bank''s benchmark for the past decade.
The UK economy expanded
0.7 per cent in the first quarter from the
fourth, the same pace as in the previous two quarters. Gross domestic product
grew 2.8 per cent last year, the highest since 2004, and the BoE forecasts a three
per cent growth this year.
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