Bank of England
February 2, 2023
The Bank of England‘s 50-basis point base rate hike to 4.0% was not supported unanimously. Monetary Policy Committee members Tenreyro and Dhingra voted to leave the rate unchanged in a 7-2 decision, citing a recession already underway that is likely to soften labor market conditions in light of the lagged impact of earlier monetary restraint that has not yet been felt. The majority view of their seven committee colleagues observed that regular pay growth, service sector prices, and overall CPI inflation (10.5% as of December) had not slowed by this point as much as assumed earlier. They expect Britain’s recession to be less pronounced than thought earlier, consider inflation risks to be skewed to the upside, and wish to counter the danger of rising expected inflation. The initial base rate 15-basis point hike from a pandemic low of 0.10% was made in December 2021. Of the eight hikes in 2022, one was by 75 bps in November, four were 50-bp moves (like today’s), and the first three were each of 25 basis points. Regarding future policy rate changes, officials now anticipate another 50 basis points of increase by the middle of this year and think the rate is unlikely to be lower than 3.25% as far out as early 2026. Rate hikes at every scheduled meeting going forward is not a foregone conclusion.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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