Breaking: BoE raises policy rate by 25 bps to 4.5% in May as expected

FXStreet Team FXStreet

Following its May policy meeting, the Bank of England (BOE) announced that it raised the policy rate by 25 basis points (bps) to 4.5% as expected. Two policymakers, Tenreyro and Dhingra, voted to keep the policy rate on hold at 4.25%.

"If there were to be evidence of more persistent pressures, then further tightening of monetary policy would be required," the BOE repeated in its policy statement.

Follow our live coverage of the BOE policy announcements and the market reaction.

Market reaction

GBP/USD recovered from daily lows with the immediate reaction and was last seen trading a few pips above 1.2600.

Key takeaways

"Risks to inflation forecast skewed significantly to the upside."

"BOE forecasts show inflation falling to 5.12% by Q4 2023 (February forecast: 3.92%), based on market interest rates and modal forecast."

"BOE forecast shows inflation in one year's time at 3.38% (February forecast: 3.01%), based on market interest rates and modal forecast."

"BOE forecast shows inflation in two years' time at 1.1% (February forecast: 0.95%), based on market interest rates."

"BOE mean CPI forecast shows CPI at 2% in three years' time, demonstrating upside risks to central forecast."

"Market rates imply more BOE tightening than February, show bank rate at 4.8% in Q4 2023, 4.0% in Q4 2024, 3.7% in Q4 2025 (February: 4.4% in Q4 2023, 3.7% in Q4 2024, 3.4% in Q4 2025)."

"BOE forecast shows inflation in three years' time at 1.2% (February forecast: 0.37%), based on market interest rates."

"BOE estimates GDP "flat" for Q1 and Q2 2023 (March forecast: Q1 -0.1% QQ)

"BOE estimates GDP in 2023 +0.25% (February forecast: -0.5%), 2024 +0.75% (February: -0.25%), 2025 +0.75% (February: +0.25%), based on market rates."

"BOE estimates real post-tax household income in 2023 +1.0% (February: -0.5%), 2024 +1.0% (February: +1.5%), 2025 +1.0% (February: +0.75%)."

"BOE estimates wage growth +5% YY in q4 2023 (February: +4%), Q4 2024 +3.5% (February: +2.25%); Q4 2025 +2.5% (February: 1.5%)."

"BOE estimates unemployment rate 3.8% in Q4 2023 (February: 4.3%); Q4 2024 4.0% (February: 4.8%); Q4 2025 4.4% (February: 5.3%)."

"Pay growth could plateau at rates inconsistent with inflation target."

"Pay settlements stable at around 6%, expected to reduce modestly in H2-2023."

"Food inflation more persistent than forecast, adds around 1 percentage point to middle of CPI horizon."

"Many companies aim to pass costs on to selling prices as much as they can."

Author

FXStreet Team

FXStreet

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