The Bank of England has raised UK interest rates by 0.5ppts to 2.25% in spite of Monetary Policy Committee (MPC) uncertainty over the best approach to stem inflation.
The increase - lower than the record rise predicted by many - was passed after a three-way split among MPC decision makers who tabled suggested interest rate rises of between 0.25ppts and 0.75ppts.
A unanimous decision was made to start selling the Bank's £840bn stockpile of government bonds that was increased massively during the COVID-19 pandemic, however, as efforts are made to draw inflation back towards a 2% target level.
Despite Prime Minister Liz Truss's move to cap average annual household energy costs at £2,500 over the next two years and Business Secretary Jacob Ress-Mogg’s plan to cap business energy bills for the next six months, inflation will remain above 10% in the coming months, the BoE warned.
A multi-billion-pound package of tax cuts set to be announced by Chancellor of the Exchequer Kwasi Kwarteng tomorrow (September 23) is expected to alter the economic outlook in a "material" way, the MPC said, but inflation is expected to peak just below 11% in October - down from a previous prediction of 13.3% - nonetheless.
The BoE asserted that its policies were not set in stone, adding that it would “respond forcefully” to stem the impact of further inflationary pressures in future.
It said: “The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.
“Policy is not on a pre-set path. The Committee will, as always, consider and decide the appropriate level of Bank Rate at each meeting.
“The scale, pace and timing of any further changes in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures.
“Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully, as necessary.”
A News Insight feature the latest edition of AM Magazine examines how the car retail sector is approaching the issue of soaring inflation.
In it, MHA employment tax director Nigel Morris has advised car retail businesses to "flex" staff bonuses and salary sacrifice schemes to mitigate against the impact of the cost-of-living crisis.
Chief people officer Chris Whitaker said: “With inflation at the levels that we are seeing it is hard to know what you can do as an employer beyond a certain point.”
He added: “The biggest commitment we can make is that of maintaining a sustainable business.”