UNITED KINGDOM — In a surprising move, the Bank of England has increased its interest rates for the 13th consecutive time, by 50 basis points to a base rate of 5%. The move was a result of policymakers trying to tackle persistently high inflation, despite market expectations predicting a 25 basis point hike. Sterling fell against the dollar after the announcement while yields on UK government bonds fell slightly. Annual UK consumer price inflation remained at 8.7% in May, signalling to economists that further monetary tightening would be needed in the near future. CNBC reports.
Core inflation (which excludes volatile energy, food, alcohol, and tobacco prices) stood at 7.1% in May, its highest point since March 1992. The MPC has stated that it will "continue to monitor closely indications of persistent inflationary pressures in the economy." Although they recognize the tightrope they're walking, attempting to quell inflationary pressures without causing a full-scale mortgage and recession crisis, they have stated that if they see "more persistent pressures," further tightening of monetary policy will be required.
Bank of England governor Andrew Bailey said, "The economy is doing better than expected, but inflation is still too high, and we've got to deal with it." Analysts suggest the larger increase and the size of the majority voting in favor of the hike implied urgency among the MPC members. Huw Davies, investment manager at Jupiter Asset Management, believes that the rate increase represents "an attempt to regain the initiative and their credibility."
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