The Monetary Policy Committee promises to keep an eye on the indications of the long-lasting inflationary pressures in the economy. It plans to monitor the labor market, wage growth, and hike in service prices.
The Bank of England hit the market with a 50 basis point hike to interest rates in the UK. The UK central bank announced the rates hike on Thursday after the Monetary Policy Committee voted to favor the increase. Notably, this marks the 13th consecutive increase as the policymakers seek ways to fight the troubling and persisting high inflation eating into the economy.
UK Central Bank Ups Interest Rates by 50 Basis Point
The 50 basis point hike resulted from the Committee’s vote, which turned out to be 7-2 in favor of the addition, taking the central bank’s base rates to 5%. The news came unexpectedly to the market, which predicted a 60% chance of a 25 basis point hike. In reaction to the announcement, the British pound sterling dropped against the dollar. Similarly, the UK gilt yields slipped, and the 10-year yield shed more than 5 basis points.
UK inflation came in higher than expected in May as the annual consumer price index jumped 8.7%, just as it was in the previous month. Meanwhile, economists’ forecast for the annual CPI index was 8.4%. Headline CPI rose 0.7% on a monthly basis. Core inflation, excluding food, alcohol, tobacco, and volatile energy prices, grew annually from 6.8% in April to 7.1%. According to the Office for National Statistics (ONS), the surge was the highest rate since 1992. The Office added:
“Rising prices for air travel, recreational and cultural goods and services, and second-hand cars resulted in the largest upward contributions to the monthly change in both the CPIH and CPI annual rates.”
Furthermore, the consumer prices index, which includes owner occupiers’ housing costs (CPIH), increased from 7.8% in April to 7.9% over the past year. Since the ONS released the data, the UK market has been waiting for the Monetary Policy Committee to decide on interest rates. The high consumer price index already approved assumptions that the Committee would agree on a hike as the struggle against inflation continues. It has been a rocky experience in the labor market and economists have ripped their predictions for peak interest rates in recent weeks. As a matter, there is an extreme possibility that the cycle of monetary policy tightening will last longer than expected.
The Monetary Policy Committee said in its Thursday summary:
“There has been significant upside news in recent data that indicates more persistence in the inflation process, against the background of a tight labor market and continued resilience in demand.”
The Committee promises to keep an eye on the indications of the long-lasting inflationary pressures in the economy. It plans to monitor the labor market, wage growth, and hike in service prices. The MPC added that there may be further tightening in monetary policy if the inflationary pressures continue. Hence, the UK could continue to record consecutive interest rate hikes.
Ibukun is a crypto/finance writer interested in passing relevant information, using non-complex words to reach all kinds of audience.
Apart from writing, she likes to see movies, cook, and explore restaurants in the city of Lagos, where she resides.
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