By The Bank of England on Thursday lifted interest rates by a half point, as it tries to quell inflation that still is running in double-digits.
The half point increase takes the central bank’s main rate to 4% from 3.5%, narrowing the differential with the U.S., where the federal funds rate is in a range between 4.5% and 4.75%.
The vote was 7-2 — with two members calling for no move at all.
While U.K. inflation was 10.5% year-over-year in December, the economy is struggling, as evidenced by a weak showing in the latest purchasing managers survey. The International Monetary Fund this week forecast the U.K. economy to be the only advanced economy to shrink in 2023.
The high prices have led to a series of strikes, including on Wednesday with the biggest day of industrial action in a decade.
“Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom. Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand. Many central banks have continued to tighten monetary policy, although market pricing indicates reductions in policy rates further ahead,” the central bank said.
The central bank said applying the market forecast for rates to reach 4.5% by midyear but then fall back to 3% in three years’ time, inflation will decline below the 2% target, though it said risks to this forecast were to the upside.
The pound
GBPUSD,
-0.44%
rose in the immediate aftermath, rising to $1.2377. The yield on the 2-year gilt
TMBMKGB-02Y,
3.256%
also moved higher.
