The Bank of England on Thursday surprised markets with a 50 basis point hike in interest rates, its 13th consecutive hike as policymakers grapple with persistently high inflation.
The Monetary Policy Committee voted 7-2 in favor of a half percentage point increase, which brings the bank's base rate to 5%. The move beat market expectations, which had expected around a 60% chance of a 25 basis point hike.
Sterling fell against the dollar after the announcement while yields on U.K. government bonds rose. also a little sust. The 10-year bond yield was down about 4 basis points.
New data on Wednesday showed U.K. consumer price inflation. annual rate was 8.7% in May, unchanged from the previous month, reinforcing market expectations that the MPC will opt for another hike. Economists also raised their expectations for further monetary tightening in the future.
Since the end of 2021, the Bank has raised its main rate from 0.1% to 5%. "The economy is doing better than expected, but inflation is still too high and we need to address it," Bank of England Governor Andrew Bailey said in one of the statements.
Joseph Little, head of global strategy at HSBC Asset Management, said the "high rise" comes at a time of economic turmoil and policymakers' objective to tackle inflation.
“U.K. is in the worst position in the major western economies. The cost of living crisis, caused by rising energy and food prices, has been amplified by structural labor shortages, and has now spread to rising wages,” said Little.
While all advanced economies are facing similar inflationary pressures after the Covid-19 pandemic, UK inflation is slowing at a slower pace, while its core component is significantly higher than all other G10 countries and still rising.
