Bank of England surprises with 50-basis-point rate hike to tackle persistent inflation
LONDON — The Bank of England on Thursday surprised markets with a 50 basis point hike to interest rates, its 13th consecutive increase as policymakers grapple with persistently high inflation.
The Monetary Policy Committee voted 7-2 in favor of the half-percentage-point increase, which takes the Bank's base rate to 5%. The move defied market expectations, which had priced in around a 60% chance of a 25 basis point hike.
Sterling slipped against the dollar after the announcement, and U.K. gilt yields tumbled, with the 10-year yield dropping over 5 basis points. Yields move inversely to prices.
Fresh data on Wednesday showed annual U.K. consumer price inflation was 8.7% in May, unchanged from the previous month, cementing market expectations that the MPC would opt for another hike. Economists also upped their expectations for further monetary tightening in the future.
Most worryingly for the central bank, core inflation — which excludes volatile energy, food, alcohol and tobacco prices — was 7.1% year-on-year in May, up from 6.8% in April and marking its highest rate since March 1992.
«There has been significant upside news in recent data that indicates more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand,» the MPC said in its summary Thursday.
«The MPC will continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.»
Policymakers are walking a tightrope as they attempt to
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