Bank of England Raises Interest Rates to 15-Year High
LONDON — Bank of England Takes Steps to Control Inflation
The Bank of England raised its main interest rate by 25 basis points to reach a 15-year high of 5.25%. This marks the 14th consecutive hike as policymakers aim to rein in inflation.
Monetary Policy Committee Votes in Favor of Rate Hike
The Monetary Policy Committee (MPC) voted 6-3 in favor of the quarter-point increase. Two members preferred a second consecutive 50 basis point hike, while one member voted to keep rates unchanged.
Market Expectations Split Ahead of Rate Decision
Market pricing was divided, with approximately 60% in favor of a quarter-point hike according to Refinitiv data.
Bank of England’s Commitment to Restrictive Policy
The MPC indicated that its tightening of monetary policy would continue for the foreseeable future. The aim is to ensure that the Bank Rate remains sufficiently restrictive for a significant period of time in order to bring inflation back to the 2% target.
Previous Rate Hike and Current Economic Landscape
In June, the Bank’s Monetary Policy Committee surprised markets with a 50 basis point hike due to higher inflation in the U.K. compared to other advanced economies. While prices have shown signs of cooling, the labor market presents a more complex situation.
Inflation and Wage Growth Concerns
In June, headline consumer price inflation decreased to 7.9% from the higher-than-expected 8.7% in May. However, core inflation, which excludes volatile energy, food, alcohol, and tobacco prices, remained steady at an annualized 6.9%, albeit lower than May’s 31-year high of 7.1%. The Bank closely monitors the tight labor market, although recent data indicates a considerable softening in May’s job activity. Wage growth remains uncomfortably strong, with private sector regular pay rising to 7.7% in May.
MPC’s Ongoing Monitoring of Economic Indicators
The MPC acknowledges mixed data outcomes but highlights key indicators such as wage growth, suggesting potential crystallization of persistent inflationary pressures. The committee will continue to closely monitor indicators of long-lasting inflationary pressures, overall economic resilience, labor market conditions, wage growth, and services price inflation.