The Bank of England has initiated its fifth consecutive interest rate hike with a 25 basis point uptick to 1.25%.
What Happened: The central bank’s Monetary Policy Committee voted 6-3 on the increase, with the dissenting voters seeking a more aggressive 50 basis point hike to 1.5%. In announcing the rate hike, the Bank of England acknowledged the U.K.’s inflation rate was “expected to average slightly over 10% at its peak in 2022” as the economy stalls.
“UK GDP was weaker than expected in April,” the central bank said in a statement, adding that it was forecasting “GDP to fall by 0.3% in the second quarter as a whole, weaker than anticipated at the time of the May Report. Consumer confidence has fallen further, but other indicators of household spending appear to have held up. Some indicators of business sentiment have weakened, although they have so far remained more resilient than indicators of consumer confidence and consistent with positive underlying GDP growth.”
See Also: Fed Hikes Key Rate And Begins Unloading Its Balance Sheet
Why It Matters: While the Bank of England acknowledged global pressures were aggravating the nation’s inflation rate, specifically noting how the Ukraine-Russia war "raised significantly the wholesale price of many agricultural commodities," it also said domestic issues are exacerbating the economic picture.
“Interactions with domestic factors, including the tight labor market and the pricing strategies of firms,” the central bank added. “Consumer services price inflation, which is more influenced by domestic costs than goods price inflation, has strengthened in recent months. In addition, core consumer goods price inflation is higher in the United Kingdom than in the euro area and in the United States.”
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