The move comes as inflationary pressures are mounting in the UK and the rest of Europe, largely as a reflection of rising gas prices as a result of Russia’s continued restrictions on gas supplies to Europe, it said. The bank said in a news release outlining its decision.
UK CPI inflation is expected to rise from 9.4% in June to just over 13% in the fourth quarter. It is projected to remain elevated through most of 2023, before hitting the 2% target.
The bank underscored slowing UK GDP growth and said the recent rise in gas prices “further significantly weakens the outlook for activity in the UK and the rest of Europe”. The economy is projected to slip into recession starting in the fourth quarter, with sharp declines in real after-tax household income expected this year and in 2023. Consumption growth is also expected to turn negative.
Seema Shah, chief strategist at Principal Global Investors, said in an emailed comment that the 50-basis-point rate hike would be the largest in 27 years and would be the “minimum measure needed by the Bank of England at this stage.” ‘ said. “With inflation reaching 13% later this year and expected to remain elevated into next year, central banks will need to tighten policy at an accelerated pace.”
Mr Shah said policy tightening “will inevitably hurt the UK economy. Rising mortgage payments and borrowing costs will only add to a terrible cost of living crisis, the worst we’ve seen in over 60 years. The Bank of England’s realistic economic projections are at least to be commended, as no other central bank has been so realistic. I wish I could,” she said.
Hussein Mehdi, macro and investment strategist at HSBC Asset Management, said in a separate email comment that the BOE’s decision “has been a major challenge in the face of ongoing supply-side challenges, including a very tight labor market. “It confirms the idea that banks are determined to keep inflation under control.” And soaring utility bills. “
The bank also said the MPC is “tentatively considering” to begin selling UK government bonds (known as gilts) held in the Asset Purchase Facility shortly after its September meeting. The meeting, he said, will be held on September 14th, with a decision announced the next day. As of 3 August, the total holdings of the Asset Purchase Facility stood at £863 billion ($1.5 trillion), including his purchase of £844 billion of gold coins and a reminder to buy non-financial investment grade corporate bonds. included.
