News Release
Bank of England Raises Interest Rates by 0.25% to 7.50%
04 June 1998
The Bank of England’s Monetary Policy Committee has today voted to raise the Bank’s repo rate by 0.25% to 7.50%. The increase takes immediate effect.
In the May Inflation Report, the Committee said that: "In the central projection, inflation is expected to remain close to its target throughout the forecast period after the temporary increase in the second quarter of this year. But there are major uncertainties which mean that the outlook for monetary policy remains finely balanced."
The central issue for monetary policy remains whether aggregate demand will slow sufficiently quickly to bring down domestically generated inflation before the restraining price effects of the earlier increase in the exchange rate and falls in commodity prices wear off. As the May Inflation Report made clear, developments in the labour market are a key determinant of domestically generated inflation. Evidence has emerged over the past month that the cumulative tightening of the labour market has resulted in a rate of private sector earnings growth that jeopardises achievement of the inflation target over the medium run. Moreover the sterling exchange rate has remained about 3% lower than in the central projection of the May Inflation Report. While there are increased uncertainties in the external environment, inflationary pressures appear greater than in the May projection, and the need for a slowdown in domestic demand growth has become more pressing. In these circumstances, the Committee voted to raise interest rates by 0.25%.
The last change in interest rates was a rise of 0.25% on 6 November 1997.
The minutes of today’s Monetary Policy Committee meeting will be published on Wednesday 15 July. Minutes of the meeting held in May will be published on Wednesday 10 June.
