Bank of England Raises Key Interest Rate, Signals More Increases Ahead

Highlights

• Bank of England hikes interest rates by 25 basis points
• Inflation remains a concern as CPI rises by 10.1%
• UK economy shows resilience, avoids recession with improved outlook

Overview

On Thursday, the Bank of England increased interest rates by 25 basis points and revised its projections for the economy of the United Kingdom. The decision to raise the main Bank rate from 4.25% to 4.5% was supported by a 7-2 majority vote from the Monetary Policy Committee. The Bank reaffirmed its commitment to controlling persistent high inflation.

Driven by elevated food and energy expenses, the consumer price index (CPI) experienced a 10.1% annual increase in March. Core inflation, which excludes volatile prices of food, energy, alcohol, and tobacco, remained steady at 5.7%, compared to the previous year, emphasizing the Bank’s concern regarding the risk of sustained inflation.

In the accompanying Monetary Policy Report, the MPC also updated its forecasts for economic growth and inflation. Notably, the Bank no longer anticipates a recession in the U.K. economy for the current year. Despite initial expectations of a downturn, the economy has displayed remarkable resilience. Aided by reduced energy costs and the fiscal stimulus outlined in the government’s Spring Budget.