Breaking: Bank of England hikes interest rates by 25bps to 0.50%, GBP spikes
|The Bank of England announced its monetary policy decision on Thursday and raised the benchmark interest rate by 25bps to 0.50%. The Monetary Policy Committee (MPC) voted 5-4 in favour of a 25 bps rate hike. The decision was in line with market expectations and marked the first back-to-back rises since 2004. The BoE MPC voted unanimously to reduce corporate bond holdings through non-reinvestment and active sales, reaching zero holdings no earlier than towards the end of 2023
Key takeaways as summarised by Reuters:
Policymakers vote 9-0 to begin to reduce £875 billion of gilt holdings by ceasing reinvestment, starting with a maturity of March 2022 gilt.
Bank rate in most circumstances will be its preferred tool for adjusting monetary policy stance.
Monetary policy report shows inflation peaking at around 7.25% in April (December forecast: around 6%).
Monetary policy cannot prevent damage to incomes from higher global energy prices and import costs.
Beyond the near term, UK growth to slow to an annual rate of 1% and unemployment to rise to 5%.
A rate rise is needed due to the current tightness of the labour market and signs of greater persistence of domestic cost pressures.
The majority of MPC think market-expected rates at 1.5% by mid-2023 would push inflation well below the target in 2024.
BoE forecast shows inflation in two years' time at 2.15%.
Boe forecast shows inflation in one year's time at 5.21%.
Boe forecast shows inflation in three years' time at 1.60%.
Market reaction
The British pound strengthened across the board in reaction to the announcement, pushing the GBP/USD pair further beyond the 1.3600 mark or a two-week high.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.