Bank Of England Softens Policy Tightening; Signals Additional Hike Ahead

RTTNews | Před 938 dny
Bank Of England Softens Policy Tightening; Signals Additional Hike Ahead

(RTTNews) - The Bank of England lifted its benchmark rate for the ninth straight session on Thursday, but moderated the pace of tightening from the previous session's 75 basis point hike, as widely anticipated, echoing the US Federal Reserve's move a day earlier.

In a three-way split, the Monetary Policy Committee of the BoE raised the bank rate by 50 basis points to 3.50 percent.

At this level, the bank rate is the highest since October 2008. In the November meeting, the BoE had adopted a 75 basis points increase, which was the biggest raise in 33 years.

Although the bank softened the pace of tightening, policymakers cautioned that further increases might be required for a sustainable return of inflation to the 2 percent target.

A day earlier, the US Federal Reserve slowed its pace of rate increases to 50 basis points after raising the rate by 75 basis points over the past four straight meetings.

Today, the European Central Bank also raised the rates by 50 basis points, slowing the pace of increases after raising rates by 75 points at the previous two meetings.

ING economist James Smith expects a final 50 basis points hike from the UK central bank in the first quarter - which may ultimately be delivered in smaller 25 basis-point chunks. Nonetheless, the UK will be slower to turn to rate cuts than the US, the economist said.

The minutes showed that six MPC members assessed that a 0.5 percentage point increase in Bank Rate was warranted now. While Swati Dhingra and Silvana Tenreyro preferred to leave the rate unchanged at 3.00 percent, their fellow policymaker Catherine Mann sought another 75 basis points hike.

A majority of the MPC observed that a 0.5 percentage point increase at this meeting would help to bring inflation back to the 2 percent target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening later.

"The labor market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response," the bank said.

Although consumer price inflation rate moderated to 10.7 percent from a 41-year high of 11.1 percent in October, it remained elevated. As the rate of inflation exceeded the 2 percent target by more than 1 percentage point, BoE Governor Andrew Bailey wrote an open letter to the Chancellor Jeremy Hunt, citing reasons for higher inflation and also actions taken by the central bank.

In the letter, Bailey said the latest projection suggested that inflation has reached its peak.

Nonetheless, inflation is expected to remain very high in the coming few months as global and domestic factors continue to push up consumer price growth. Inflation is then forecast to fall gradually into the spring of next year.

Bank staff has raised the GDP forecast for the fourth quarter of 2022 to -0.1 percent from -0.3 percent projected in November. There are considerable uncertainties around the outlook, the bank noted.

Značky : GBP
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