The Bank of England on Thursday hiked its key interest rate for the 14th time in a row, by a quarter-point to 5.25% as UK inflation stays high. BoE hiked the rate to a 15-year peak and gave a new warning that borrowing costs were likely to stay high for some time.
Unlike the U.S. Federal Reserve or the European Central Bank – which also both raised rates by a quarter-point last week – the BoE’s Monetary Policy Committee gave little suggestion that rate hikes were about to end as it battles high inflation.
British inflation hit a 41-year high of 11.1% last year and has fallen more slowly than elsewhere, dropping to 7.9% in June, the highest of any major economy. Economists polled by Reuters last week forecast BoE rates would peak at 5.75% later this year. The BoE’s forecasts were based on recent market assumptions which have now eased somewhat that rates would peak at over 6% and average nearly 5.5% the over the next three years.
Policymakers voted 6-3 for the increase but were split three ways on the decision for the first time this year. Two MPC members – Catherine Mann and Jonathan Haskel – voted for a half-point increase this month, while Swati Dhingra voted for no change, as she has all this year, warning of overtightening.
The BoE forecast inflation would fall to 4.9% by the end of this year – a faster decline than it had predicted in May. This will relieve Prime Minister Rishi Sunak, who pledged in January to halve inflation this year, a goal that had looked challenging.