United Kingdom: BoE hikes by 50 basis points in June
On 22 June, the Bank of England (BoE) increased the bank rate from 4.50% to 5.00%, taking total tightening in the current cycle to 490 basis points.
The main driver of the decision was the desire to tame stubborn price pressures: Headline inflation has been above both the market’s and the Bank’s expectations in recent months, and core inflation rose to a multi-decade high in May. In addition, the BoE commented that both employment and wage growth have overshot its forecasts recently, further increasing the pressure to hike.
In its communiqué, the MPC reiterated that further monetary tightening would be required if there was evidence of more persistent inflationary pressures. The Consensus is for the Bank Rate to end the year above its current level, as the BoE continues its efforts to dampen prices.
On the outlook, analysts at the ING said:
“Until we begin to see some improvement in the official inflation statistics, the committee won’t be content with pausing. We’re tempted to say that today’s 50bp move won’t become a new trend, but two further 25bp hikes seem like the most likely route after today’s meeting.”
Goldman Sachs analysts are even more hawkish:
“Given our expectations for resilient growth, sticky wage growth, and stubbornly high core inflation, we expect a second 50bp in August (vs 25bp before) and look for the MPC to finish with a final 25bp hike in September, raising our forecast for the terminal rate to 5.75%.”
The next monetary policy decision will be announced on the 3 August.