Bank of England raises interest rates to 5 percent
22 June 2023
The Bank of England’s (BoE) monetary policy committee (MPC) voted by a majority of 7-2 to raise interest rates to 5 percent on Thursday – up from 4.5 percent and the highest level since 2008.
Following a 25 basis points hike in May, today’s 0.5 percent increase is aimed at curtailing soaring inflation, which unexpectedly remained at 8.7 percent last month – well above the Bank’s 2 percent target and an outlier among major Western economies.
Summarising the reasons behind the MPC’s 13th consecutive rate rise, the Bank said: “Seven members judged that [an] increase [to the] Bank Rate…was warranted at this meeting. The second-round effects in domestic price and wage developments generated by external cost shocks were likely to take longer to unwind than they had done to emerge. There had been significant upside news in recent data that indicated more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand.
“Some indicators of future pay growth and goods inflation had weakened, but their properties as leading indicators had not been tested in a similar period of high inflation. The scale of the recent upside surprises in official estimates of wage growth and services CPI inflation suggested a 0.5 percentage point increase in interest rates was required at this particular meeting.”
In addition, the minutes of the meeting included references to international energy markets: “European wholesale spot and futures gas prices had been relatively volatile given changes in long-range weather forecasts and disruptions in supplies from Norway, but had ended the period since the MPC’s previous meeting little changed. The Brent crude oil spot price had declined by around 3 percent since the MPC’s previous meeting to around $75 per barrel. Agricultural commodity prices had been broadly unchanged.”
In a setback to many homeowners and businesses, the MPC also hinted at further potential rate rises in the coming months: “The MPC [will] continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.
“The MPC would adjust Bank Rate as necessary to return inflation to the 2 percent target sustainably in the medium term, in line with its remit.”
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