The Bank of England (BoE) announced on Thursday its Monetary Policy
Committee (MPC) voted by a majority of 7-2 to rise the Bank Rate from 4.00
percent to 4.25 percent at its March meeting. Most economists had foreseen a
hike of 25 basis points in the BoE’s key interest rate. Of the minority, two
members preferred to leave the Bank Rate unchanged at 4.00 percent.
In its statement, the BoE notes:
- Its Financial Policy Committee (FPC) judges that UK banking system
maintains robust capital and strong liquidity positions, and is well placed to
continue supporting economy in a wide range of economic scenarios;
- FPC’s assessment is that the UK banking system remains resilient;
- MPC will continue to monitor closely any effects of recent global
banking sector developments on credit conditions faced by households and
businesses, and hence impact on macroeconomic and inflation outlook;
- Following announcement of additional fiscal support in the Spring
Budget, UK’s GDP is still likely to have been broadly flat around the turn of
the year, but is now expected to increase slightly in the second quarter,
compared to 0.4% decline anticipated in February;
- Despite unexpected rise in February, CPI inflation is still expected
to fall significantly in the second quarter, to a lower rate than anticipated
in February. Meanwhile, services CPI inflation is expected to remain broadly
unchanged in the near term, but wage growth is likely to fall back somewhat
more quickly than projected in February;
- Near-term paths of GDP and employment are likely to be somewhat
stronger than expected previously
- Extent to which domestic inflationary pressures ease will depend on evolution
of economy, including the impact of the significant increases in Bank Rate so
far;
- Uncertainties around financial and economic outlook have risen;
- MPC will continue to monitor closely indications of persistent
inflationary pressures, including tightness of labour market conditions and
behaviour of wage growth and services inflation;
- If there were to be evidence of more persistent pressures, then further
tightening in monetary policy would be required;
- MPC will adjust Bank Rate as necessary to return inflation to the 2%
target sustainably in the medium term, in line with its remit