LONDON — The Bank of England on Thursday hiked interest rates by 25 basis point as it grapples with persistent high inflation against the backdrop of concerns over the banking system.
The Monetary Policy Committee voted7-2in favor of raising the Bank rate to 4.25%, in a widely anticipated move after official data on Wednesday showed that U.K. inflation unexpectedly jumped to an annual 10.4% in February.
In its summary, the MPC highlighted that global growth is expected to be stronger than projected in its February Monetary Policy Report, while core consumer price inflation — which excludes volatile food and energy prices — has remained elevated.
The Bank of England estimates that additional fiscal support announced in Finance Minister Jeremy Hunt's Spring Budget last week will increase the level of the U.K. GDP by around 0.3% over the coming years.
«GDP is still likely to have been broadly flat around the turn of the year, but is now expected to increase slightly in the second quarter, compared with the 0.4% decline anticipated in the February Report,» the MPC said in its report.
«As the Government's Energy Price Guarantee (EPG) will be maintained at £2,500 for three further months from April, real household disposable income could remain broadly flat in the near term, rather than falling significantly.»
The Bank highlighted that much of the surprising strength in core goods prices indicated in Wednesday's inflation report could be attributed to clothing and footwear prices, which «tend to be volatile and could therefore prove less persistent.
Meanwhile the labor market has remained tight, and the Bank now anticipates that employment growth in the second quarter will be stronger than previously projected, while the
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