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Bank of England hikes again

11 May 2023 By Klavs Valters

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Bank of England announced the latest policy decision on Thursday, raising interest rates for the 12th consecutive time from 4.25% to 4.5%, which was in line with expectations.

Bank of England’s Monetary Policy Committee voted by a majority of 7-2 to raise interest rates to 4.5%.

Two members voted to maintain the interest rate unchanged at 4.25%.

The current interest rate is at its highest level since October 2008.

Inflation

UK’s annual inflation rate decreased from 10.4% to 10.1% in April and remains high. The bank expects inflation to continue falling in Q2 and in the near term.

”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. In addition, the extension in the Spring Budget of the Energy Price Guarantee and declines in wholesale energy prices will both lower the contribution from household energy bills to CPI inflation. However, food price inflation is likely to fall back more slowly than previously expected. Alongside news in other goods prices, this explains why the Committee’s modal expectation for CPI inflation now falls back more slowly than in the February Report.”

Economic outlook

As for the economy, the central bank expects it to remain flat but there are signs potential growth.

”UK GDP is expected to be flat over the first half of this year, although underlying output, excluding the estimated impact of strikes and an extra bank holiday, is projected to grow modestly. 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 improved outlook reflects stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labour market leads to lower precautionary saving by households.”

The unemployment is expected to remain below 4% until the end of next year.

Market reaction

The Pound was weaker against the US dollar on Thursday, down by around -0.93% at 1.25089.

FTSE100 was down by -0.14% at 7733.41.

The next Bank of England rate decision will be on 22nd June.

Source: Bank of England, Trading Economics, MetaTrader 5

 

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