Bank of England hikes rates by 25bps to 5.25%
The Bank of England
In a 6-3 vote, the central bank's Monetary Policy Committee voted to hike rates by 25bps, with two voting for a 50bps hike and one voting for no change.
Expectations for the peak of interest rates reached 6.5% last month after record wage growth was recorded. However, they have since fallen back following the drop in inflation throughout June, now sitting at about 6%, a level that is predicted to be reached later this year or early in 2024.
Shop price inflation falls to lowest level of 2023
The MPC report noted that the 7.7% increase in pay growth was «materially above expectations» the Bank had made in May, although inflation had come in lower than expected.
Inflation in the UK, which fell in June to 7.9%, has been much stickier than in other countries and remains well above other developed countries, such as the rate in the US of 3%.
Inflation is expected to fall «significantly further» throughout the year, the MPC said, largely due to lower energy prices, but also a reduction in the price growth of food and core goods.
«Services price inflation, however, is projected to remain elevated at close to its current rate in the near term,» it warned.
Eurozone economy grows faster than expected
On a longer horizon, the BoE still expects inflation to return to target, reaching 2% and 1.9% at the two and three-year horizons respectively.
«Recent data outturns have been mixed. However, some key indicators, notably wage growth, suggest that some of the risks from more persistent inflationary pressures may have begun to crystallise,» it added.
It also warned that further tightening in monetary policy would be required «if there were to be evidence of more persistent pressures».
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