The Bank of England lifted its benchmark interest rate for the twelfth straight session and signaled more tightening to address the persistent strength in domestic price pressures amid an improvement in the economic growth outlook.
The nine-member Monetary Policy Committee, led by Governor Andrew Bailey, decided to lift the bank rate by 25 basis points to 4.50 percent, the highest since 2008.
Seven members of the central bank panel voted for a quarter point hike, while Swati Dhingra and Silvana Tenreyro again sought to maintain the status quo.
The BoE has raised its benchmark rate at every rate-setting session since December 2021.
Majority of members said it was important to continue to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for consumer price inflation.
They said there had been “repeated surprises” about the resilience of demand, while the labor market had remained tight.
“The MPC will adjust Bank Rate as necessary to return inflation to the 2 percent target sustainably in the medium term, in line with its remit,” the bank said.
Another increase in interest rate is possible, but with inflation forecast to be well below the target in a couple of years’ time, this tightening cycle is reaching its limit, ING economist James Smith said.
In the quarterly monetary policy report, the central bank said economic activity has been less weak than expected in February. The latest upgrade in growth outlook was the biggest since 1997.
With the latest revision, the bank erased the possibility of a recession. Gross domestic product is expected to be flat over the first half of this year. Calendar-year GDP growth is expected to be 0.25 percent in 2023 and 0.75 percent in 2024 and 2025.
In the near-term, the labor market is forecast to remain tighter than a quarter ago. The jobless rate is estimated to remain below 4 percent until the end of 2024, before rising over the second half of the forecast period to around 4.5 percent.
Inflation is expected to fall quickly to around 5 percent by the end of this year and expects to achieve its 2 percent target by late 2024.
The bank said inflation will decline to a little above 4 percent at the end of two and three-year horizons.
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