Breaking: Bank of England hikes interest rates by 25bps to 0.50%, GBP spikes
03.02.2022, 12:00

Breaking: Bank of England hikes interest rates by 25bps to 0.50%, GBP spikes

The Bank of England announced its monetary policy decision on Thursday and raised the benchmark interest rate by 25bps to 0.50%. The Monetary Policy Committee (MPC) voted 5-4 in favour of a 25 bps rate hike. The decision was in line with market expectations and marked the first back-to-back rises since 2004. The BoE MPC voted unanimously to reduce corporate bond holdings through non-reinvestment and active sales, reaching zero holdings no earlier than towards the end of 2023

Key takeaways as summarised by Reuters:

Policymakers vote 9-0 to begin to reduce £875 billion of gilt holdings by ceasing reinvestment, starting with a maturity of March 2022 gilt.
Bank rate in most circumstances will be its preferred tool for adjusting monetary policy stance.
Monetary policy report shows inflation peaking at around 7.25% in April (December forecast: around 6%).
Monetary policy cannot prevent damage to incomes from higher global energy prices and import costs.
Beyond the near term, UK growth to slow to an annual rate of 1% and unemployment to rise to 5%.
A rate rise is needed due to the current tightness of the labour market and signs of greater persistence of domestic cost pressures.
The majority of MPC think market-expected rates at 1.5% by mid-2023 would push inflation well below the target in 2024.
BoE forecast shows inflation in two years' time at 2.15%.
Boe forecast shows inflation in one year's time at 5.21%.
Boe forecast shows inflation in three years' time at 1.60%.

Market reaction

The British pound strengthened across the board in reaction to the announcement, pushing the GBP/USD pair further beyond the 1.3600 mark or a two-week high.

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