Bank of England announces further hike to 0.50%

  • The Bank of England has raised rates for a second time since December 2021 to 0.50%.
  • The committee voted 5-4 in favour of a hike to 0.50%, with those in the minority favouring a rise to 0.75%.
  • CPI is expected to peak at 7.25% in April 2022, a full 2% higher than was expected in November 2021.
  • Initial market reaction sees the UK 10 year government bond rise above pre-pandemic levels.

Jonathan Moyes, Head of Investment Research, Wealth Club

“This was a very hawkish statement from the bank. The committee voted 5-4 in favour of a rise to 0.50%, with the minority preferring to go even further, raising rates to 0.75%. With plans to reduce QE also receiving unanimous support the MPC is pulling on several policy levers at once.

The rate hike had been expected for several weeks, but it’s the more hawkish tone in the accompanying commentary that may take market participants by surprise. With CPI forecast to hit 7.25% in April 2022, the MPC clearly felt they needed to act swiftly to cool inflationary pressures.

Households and businesses will find little of comfort in the minutes today, the short term outlook is one of heightened inflationary pressures, whilst further out conditions appear to be increasingly recessionary. The Bank has a fine balancing act on its hands.”

Suren Thiru, Head of Economics, at the British Chambers of Commerce (BCC), said:  

“The decision to raise interest rates will cause considerable consternation among households and businesses given the mounting cost pressures and soaring energy bills many are facing. 

“Although a quarter point rise may have a limited impact on most firms, many will view back-to-back rate hikes, and four Monetary Policy Committee members voting for a more significant rate rise, as a leap towards a sustained period of significant monetary tightening.  

“The Bank of England is seeking to dampen an inflationary surge it has little control over. Higher interest rates will do little to limit the soaring energy costs and persistent supply chain disruption that are driving the current spike in inflation. 

“With the increase in Ofgem’s energy price cap from April set to push inflation to around 7%, despite government support, further interest rate rises are inevitable. However, raising rates too aggressively risks undermining confidence and lowering growth.  

“There should be a greater focus on government’s Supply Chain Advisory Group and Industry Taskforce to work with industry to deliver practical solutions to ease the supply constraints that continue to drive the upward pressure on prices. 

“Action to limit the unprecedented surge in costs facing businesses, including financial support for those struggling with soaring energy bills, would help ease the pressure on firms to increase prices further.”  

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