Bank of England Interest Rate Hiked to 5.25%, Meeting Analyst Expectations
August 3, 2023
The Bank of England raised its bank rate by 25 basis points after a 6-3 vote that included two dissents favoring a 50-bp tightening and one committee member who preferred leaving the key rate steady. At 5.25%, the new rate level after 14 increases since December 2021 has climbed a total of 515 basis points. Today’s statement of explanation notes that inflation, while now past its peak remains too high. The problem is blamed on a series of shocks beginning with Covid but including Russia’s war and a shrinking labor force that’s put upward pressure on wages. Consumer price inflation was at 7.9% as of July versus 11.1% last October. Service sector prices continue to rise far to quickly, for example, and some risk factors flagged in May have since crystalized. “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with its remit.” CPI inflation is now expected to drop to 5.0% by end-2023 but not meet target until around mid-2025.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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