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Bank of England Raises Key Rate by 50 Basis Points to Tame Raging Inflation

Friday, August 5, 2022
Bank of England Raises Key Rate by 50 Basis Points to Tame Raging Inflation © Reuters.

By Geoffrey Smith

Investing.com -- The Bank of England raised its key refinancing rate by 50 basis points on Thursday, responding to the highest inflation in over 30 years with its biggest hike in 27.

At 1.75%, the refinancing rate is now at its highest since 2009.

The nine members of the bank's Monetary Policy Council voted unanimously for the measure, a surprising show of unity given that some members had indicated ahead of time that they favored a smaller 25 basis point step due to increasingly clear signs that the U.K. economy is heading into recession.

The bank reaffirmed that it expects the economy to start contracting later this year, but was forced to take aggressive action by a new forecast that sees inflation rising to over 13% by the fourth quarter, due largely to another big increase in regulated household energy prices. It had previously forecast a peak in CPI inflation of only 9.4%.

""The labour market remains tight, and domestic cost and price pressures are elevated," the Bank said. "There is a risk that a longer period of externally generated price inflation will lead to more enduring domestic price and wage pressures."

It noted that it expected inflation to remain "at very elevated levels" for most of next year before starting to decline to its 2% target.

The new forecasts drove sterling over half a percent against the dollar.  The FTSE100 trimmed its gains for the day, while the yield on the U.K.'s benchmark 10-Year bond fellby 4 basis points to 1.87% by 7:15 AM ET (1115 GMT).

Separately, the Bank also indicated that it will reverse the 'quantitative easing' of the last couple of years twice as fast as it previously estimated. The MPC is now targeting sales of 80 billion pounds of U.K. government bonds, known as Gilts, over the next year. Sales are due to start shortly after the MPC's September meeting, subject to market conditions.

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19-08-2022 14:46:48 (UTC+7)

EUR/USD

1.0093

+0.0005 (+0.05%)

Summary

↑ Buy

Moving Avg:

Buy (12)

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Indicators:

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EUR/USD

1.0093

+0.0005 (+0.05%)

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↑ Buy

Moving Avg:

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1.1921

-0.0009 (-0.08%)

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Neutral

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USD/JPY

136.57

+0.69 (+0.51%)

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 EUR/USD1.0093↑ Buy
 GBP/USD1.1921Neutral
 USD/JPY136.57↑ Buy
 AUD/USD0.6914↑ Buy
 USD/CAD1.2964↑ Sell
 EUR/JPY137.85↑ Buy
 EUR/CHF0.9666↑ Buy
 Gold1,766.75↑ Sell
 Silver19.188↑ Sell
 Copper3.6298↑ Buy
 Crude Oil WTI89.77↑ Buy
 Brent Oil95.84↑ Buy
 Natural Gas9.097↑ Buy
 US Coffee C214.80↑ Sell
 Euro Stoxx 503,766.75Buy
 S&P 5004,283.74Sell
 DAX13,647.75Sell
 FTSE 1007,542.82↑ Buy
 Hang Seng19,784.50↑ Buy
 Small Cap 20002,000.73↑ Buy
 IBEX 358,401.34↑ Buy
 BASF43.435↑ Buy
 Bayer53.72Sell
 Allianz177.56↑ Buy
 Adidas166.54↑ Sell
 Lufthansa6.425Neutral
 Siemens AG110.00Sell
 Deutsche Bank AG8.708Buy
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