The Bank of England today raised the benchmark rate by 50 basis points to 5%, double expectations.
The raise from 4.5% will raise the base interest rate to its highest level in 15 years.
The rise is seen as part of the Bank of England’s increasingly difficult battle to contain inflation, which remains at a historic high of 8.7%.
The recent rise is the 13th in a row and has been steadily rising over the past 18 months since 0.1% in December 2021.
The central bank’s Monetary Policy Committee voted 7-2 to raise interest rates by 50 basis points, leaving the inflation target unchanged at 2% and not ruling out further rate hikes to force inflation down if needed. said.
Along with this increase, mortgage rates and savings rates are also expected to rise.
Seven members of the MPC voted in favor of the hike, but two members preferred to keep the bank rate at 4.5%, suggesting disagreement over the speed and magnitude of the rate hike.
In today’s report, the MPC said yields have risen significantly since its last meeting in May, especially on shorter maturities, suggesting a path for bank rates to average around 5.5%.
The committee said it continues to closely monitor the impact of a significant hike in bank interest rates.
The MPC cited persistently high inflation as one of its decision-making factors, but added that CPI inflation was expected to “below further significantly” throughout the year, reflecting falling energy prices.
Core goods CPI inflation is expected to ease later this year, supported by early-stage costs in the supply chain and developments in price indicators.
The MPC said, “It is clear that it is the MPC’s mandate that the inflation target is always applied, reflecting the priority of price stability in the UK’s monetary policy framework. I am aware that I may,” he said. Monetary policy will ensure a sustained return to the 2% target for CPI inflation over the medium term. “
“The MPC will continue to monitor closely signs of sustained inflationary pressures across the economy, such as tightening labor market conditions and wage growth and service price inflation. “Further monetary policy tightening will be required. In line with its mandate, the MPC will adjust bank rates as necessary to sustainably return inflation to its 2% target over the medium term. ”
Alexandra Lloydon, director of partner engagement and consultancy at Wealth Manager St James’ Place, said: “A sustained high interest rate should encourage saving rather than consumption, but curtailing spending and encouraging firms to avoid inflation Both resisting wages above the rate are proving to be a challenge.” go up. “
Omnis Investments Chief Executive Officer Robert Jeffrey said the bank was under pressure today to impose a significant rate hike.
“Following May’s report of high inflation, the Bank of England faced a dilemma regarding today’s interest rate decision,” he said. No, and the alarming acceleration in prices in the service sector is just too risky to take, but millions are already on the refinancing cliff after the fastest rate rise since the late 1980s. We are facing it, and it is getting harder to get over that cliff.
“Even though policy has become more data-dependent, the central bank has had to hike rates. bad news for borrowers, but good news for savers.”
Richard Carter, head of fixed rate research at Quilter Cheviot, said: “Yesterday’s shocking inflation data has left the Bank of England clearly terrified and taking a bolder move than expected by raising interest rates by 50 basis points. until inflation started to come down,” he said. The Bank of England will continue to put the brakes on the economy at a more favorable level, so the UK will once again stare into the barrel of rising interest rates and economic strife.
“It is perhaps becoming apparent that a recession may be the only option to bring down inflation due to the more peculiar economic situation in the UK. That’s not to say there isn’t a recession lurking ahead.”
“While some investors were speculating on the risk of a 50bps rate hike today, this decision will come as a shock to many in the market,” said Luke Bartholomew, senior economist at Abdon. rice field.
“The risk of the Bank of England making such a surprise is that they appear panicked, increasing uncertainty about future interest rate movements. They clearly feel that inflation statistics are ugly enough to justify such a massive move to curb inflation expectations.
“It is becoming increasingly difficult to see how the UK will avoid a recession as part of the process of lowering inflation. It will be seen as an important milestone towards that recession.”
• The bank’s next benchmark rate decision will be announced on August 3rd.
