The Bank of England hikes Bank rate by 0.25% with 7 MPC members backing the move

The Monetary Policy Committee of the Bank of England decided to increase the Bank rate by 25 basis points to 0.50% with the majority of 7 members of the MPC backing the decision.

The rate hike was widely expected by markets with inflation above the Bank’s inflation target for some time already and the UK third-quarter economic growth rate rising by 0.4%, above market expectations.  

The MPC voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

The main points of BoE's decision are:

• BoE decided to increase the Bank rate by 25 basis points to 0.50% in line with expectations.
• Voting pattern was 7-2 for the rate hike with BOE deputy governors Jon Cunliffe and Dave Ramsden dissenting.
• BoE said all members agree that any future rate rises expected to be “at a gradual pace and to a limited extent” forecasting only two additional rate hikes in next 3 years.
• BoE said that the economic outlook is ”broadly similar” to August Inflation report confirming that there are “considerable risks” remaining, including Brexit-related risks.
• BoE said that the Inflation report forecast are based on market interest rate assumption of the Bank rate at 0.7% in Q3 2018, 0.9% in Q4 2019, 1.0% in Q3 2020.

Sterling fell 1.0% against the US Dollar in the knee-jerk reaction to the rate hike decision as the BoE's forecast of only two subsequent rate hikes in 3 years proved much more dovish than expected.