BoE raises rates by 25bps

The Bank of England (BoE) has raised the UK Bank Rate by 25 basis points to 4.5%, marking the 12th consecutive hike in a row. While the Monetary Policy Committee (MPC) voted 7-2 for the hike, two members voted for rates to remain unchanged at 4.25%. The BoE said that further monetary policy tightening ‘would be required’ if price pressures remain persistent. It said that it is continuing to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for CPI inflation.

According to BoE Governor Andrew Bailey, the BoE expects UK GDP to be flat in H1 and grow modestly in the rest of the year. The bank also stated that it expects CPI to fall sharply from April. The BoE’s decision was conditioned on a market-implied path for Bank Rate that peaks at around 4¾% in 2023 Q4 before ending the forecast period at just over 3½%.

Prior to the policy decision, Sterling was trading at 1.2575 against the US dollar. The pair touched 1.2600 post-decision and currently eye the multi-month high around 1.2667/1.2680. The BoE said that the UK’s economic activity has been less weak than expected in February and the Committee now judges that the path of demand is likely to be materially stronger than expected in the February Report, albeit still subdued by historical standards.

The BoE’s decision to raise the UK Bank Rate comes amid concerns over inflation as consumer prices in the UK have surged to their highest level in over a decade. The bank’s decision reflects its efforts to keep the inflation rate under control. The bank has also indicated that it may raise the interest rate further if inflationary pressures persist.