HomeFinancial MarketsBank of England Shocks With 0.5% Interest Rate Hike

Bank of England Shocks With 0.5% Interest Rate Hike

The Bank of England (BoE) announced an unexpected 0.5% interest rate hike to 5% on Thursday, its thirteenth consecutive increase in the battle to suppress persistent inflation.

Rates are now at a 15-year high, with financial markets still expecting at least another four 25-basis point hikes to come before the end of 2023. This would push the interest rate to 6% by the year’s end.

Members of the Monetary Policy Committee (MPC) voted 7-2 in favor of the half-percentage point hike, with only Swati Dhingra and Silvana Tenreyro preferring to hold the interest rate at a level of 4.5%.

BoE governor Andrew Bailey stated that while the UK economy is performing better than expected, inflation remains too high above the BoE’s 2% target.

“We know this is hard – many people with mortgages or loans will be understandably worried about what this means for them. But if we don’t raise rates now, it could be worse later,” Bailey warned.

Following the BoE’s announcement, the sterling gained 0.4% against the dollar to stand at $1.28. Despite expectations of a fall, UK inflation remained at 8.7% for the year to date in May.

 

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