BANK OF ENGLAND RATE DECISION:
- Bank of England raises interest rates by 25 basis points to 1.25%, in line with market expectations
- The bank says second quarter GDP is likely to fall by 0.3%, recognizes that inflation risks have risen
- MPC drops tightening language, says the scale, pace and timing of any further increases in rates will reflect the Committee's assessment of the economic outlook and inflationary pressures
Most Read: Fed Raises Rates by 75 Basis Points in Largest Hike Since 1994 in Effort to Crush Inflation[1]
The Bank of England raised its key interest rate by 25 basis points to 1.25% at the conclusion of its June monetary policy meeting, in line with market expectations[2]. Today’s move represents the fifth straight hike delivered by BoE in its effort to blunt sky-high inflation in the economy, which is running at its fastest pace since the early 1980s. For context, annual CPI has continued to accelerate in recent months, reaching 9% in April, driven by, among other things, soaring energy costs.
Although price pressures may ease in 2023, the light at the end of the tunnel is not yet visible, with the central bank expecting CPI to exceed 11% in the fall before downshifting in late in the winter. Sterling's weakness is not making the situation any easier for policymakers. Earlier this week, the British currency hit its lowest level against the U.S. dollar[3] in more than two years, accumulating a 5% drop in June and raising fears that exchange rate pass-through depreciation could reinforce inflationary forces, considering that the UK is a net energy importer.
While the inflation profile has deteriorated, BoE has been unable to meet the moment with a front-loaded policy response similar to those delivered
