BoE raises interest rate for 12th time to 4.5%

The Bank of England (BoE) has raised interest rates for the 12th consecutive time to 4.5%, up from 4.25%. 

The BoE’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to increase the rate by 0.25% in a bid to meet the 2% inflation target. 

The committee said it voted to increase the bank rate in an attempt to continue to address the “risk of more persistent strength in domestic price and wage setting”, as represented by its projected distribution for CPI inflation.

It added the pace at which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the global financial and economic outlook “remain elevated”, it added.

In the MPC’s latest modal projection conditioned on market interest rates, CPI inflation declines to a little above 1% at the two and three-year horizons, materially below the 2% target. 

The MPC said this reflects the emergence of an increasing degree of economic slack and declining external pressures that are expected to reduce CPI inflation. However, it warned that considerable uncertainties remain around the pace at which CPI inflation will return sustainably to the 2% target.

In its latest update, the BoE also said that UK-weighted world GDP is now expected to grow at a “moderate pace”, and that while risks remain, it expects there will only be a small impact on GDP from tighter credit conditions. 

Looking ahead, the MPC said it would continue to closely monitor indications of persistent inflationary pressures, including the behaviour of wage growth and services price inflation.