BoE hikes key interest rate by 50 bps
The Bank of England's (BoE) Monetary Policy Committee (MPC) revealed on Thursday that it has decided to raise its interest rate by half of a percentage point to 4% in a 7-2 vote, with the rate standing at its highest level since October 2008. This was the tenth consecutive hike.
The committee stressed that although consumer inflation has likely peaked "across many advanced economies, including in the United Kingdom," it still "remains high," with inflationary pressures in the country being "firmer than expected." BoE noted that the labor market proceeds to be "tight by historical standards."
The annual inflation in the UK is expected to decrease to 4% towards the end of 2023, "alongside a much shallower projected decline in output than in the November Report forecast," with GDP now anticipated to contract 0.7% in the first quarter of 2024 as opposed to previously projected 2%. BoE estimated inflation could go down below the 2% medium-term target if the interest rate reaches approximately 4.5% by the middle of this year, and falls back to just over 3.25% "in three years’ time."