- The Bank of England has raised the base rate from 3.5% to 4%
- This is the 10th consecutive rise
- The forecasts suggest that inflation has now peaked, and that it will come down gradually this year and next, eventually dropping beneath the Bank’s 2% target
- The Bank also upgraded its forecast for the economy. While it still projects a technical recession this year, it would be a very shallow recession
- Seven members of the nine-person Monetary Policy Committee supported the half percentage point increase
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Bank of England Voting For Yet Another Rate Hike
It’s pretty apt that its Groundhog Day given Bank of England policymakers are on stuck on repeat. They are trying to bring down still-hot inflation, while not tipping the economy into a more punishing downturn by raising interest rates yet again.
The 0.5% hike was widely expected because, although energy bills have made a sharp retreat, the fight for talent shows little sign of cooling off and wages are staying particularly stubborn. The pound fell after the announcement as markets digest the latest monetary policy decision.
There is deviation from previous scripts, which painted a picture of a long and deep recession. In these minutes a brighter outlook has emerged, with unemployment not rising so high, and the economic contraction set to be milder. It’s a ray of light in an otherwise gloomy week with Britain’s laggard status among the G7 being confirmed by the IMF. But pessimism does look set to seep away.
Companies appear to be peering through the current gloom at rays of sunshine on the horizon with optimism about the year ahead. The most recent PMI snapshot showed business activity climbing further from October lows and the Lloyds Bank Business Barometer out earlier this week showed pessimism was ebbing away.
Just as Bill Murray finally jolted his daily grind out of repeat, Andrew Baily’s own Groundhog Day film may be coming to an end. The economy may ring one last alarm in the weeks to come, jolting policymakers into making a further rate rise, but the story in the back half of the year is set to move to a guessing game of rate cuts, as deflationary forces accelerate.
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
