Bank Of England To Deliver 25 Bps Hike; Markets Eyeing Guidance

The Bank of England is set to raise the benchmark interest rate by 25 basis points on Thursday given the persistently high inflation and the tight labor market conditions.

The UK central bank is anticipated to maintain its data-dependent guidance, while markets are divided over the need for further tightening.

Some policymakers had sounded hawkish due to concerns over the wage-price spiral. But there is a risk of further tightening triggering a downturn in the economy.

The nine-member Monetary Policy Committee is likely to opt for a 25 basis point increase in a split vote of 7-2. The announcement is due on May 11 at 07:00 AM ET.

The BoE has raised its benchmark rates at every rate-setting session since December 2021. A cumulative 415 basis point increase over the past eleven consecutive meetings have taken the interest rate to the highest since 2008.

BoE’s peers, the US Federal Reserve and the European Central Bank, had delivered 25 basis points increases in their latest rate-setting sessions.

Earlier this month, the US Fed had lifted the target range for the federal funds rate to 5.00 to 5.25 percent, making the tenth straight increase.

The ECB had softened its tightening cycle in April. The refi rate was lifted by a quarter-point after a half-a-point hike in March.

The BoE is also set to publish its quarterly monetary policy report that highlights the economic outlook and inflation projections.

The bank is forecast to upgrade its economic forecast.

The UK economy had performed stronger than expected in the first quarter and avoided a recession. Nonetheless, gross domestic product had stagnated as widespread strikes dampened services output.

The International Monetary Fund projected the UK economy to shrink 0.3 percent this year before expanding 1.0 percent in 2024.

At 10.1 percent, British consumer price inflation had slowed in March from 10.4 percent in February. Yet, inflation remains stubbornly above 10.0 percent.

Official data showed that job vacancies continued to remain above 1 million in the first quarter and wage growth remained strong.

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