The Bank of England (BoE) announced on Thursday its Monetary Policy
Committee (MPC) voted by a majority of 7-2 to hike the Bank Rate from 4.25
percent to 4.50 percent at its May meeting. Markets had predicted an increase
of 25 basis points in the BoE’s key interest rate. Of the minority, two MPC members
preferred to keep the Bank Rate unchanged at 4.25 percent.
In its statement, the BoE notes:
- By hiking the Bank Rate by 0.25
percentage points at this meeting, the MPC is continuing to address the risk of
more persistent strength in domestic price and wage setting;
- UK GDP is expected to be flat over the first half of this year;
- Path of demand is likely to be materially stronger than expected in February.
Improved outlook reflects stronger global growth, lower energy prices, fiscal
support in the Spring Budget, and possibility that tight labour market leads to
lower precautionary saving by households;
- UK’s labour market is seen to remain tighter than expected in February
in the near term. Unemployment rate is now projected to remain below 4.0% until
the end of 2024, before rising over the second half of the forecast period to
around 4.5%;
- CPI inflation is expected to fall sharply from April, in part as large
rises in the price level one year ago drop out of the annual comparison;
- MPC continues to judge that the risks around the inflation forecast
are skewed significantly to the upside;
- Pace at which domestic inflationary pressures ease will depend on the
evolution of the economy, including the impact of the significant increases in
Bank Rate so far;
- Uncertainties around the global financial and economic outlook remain
elevated;
- MPC will continue to monitor closely indications of persistent
inflationary pressures, including the tightness of labour market conditions and
the behaviour of wage growth and services price inflation;
- If there were to be evidence of
more persistent pressures, then further tightening in monetary policy would be
required