Bank of England hikes rates to 0.5%, up 25 basis points
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The Bank of England raised its benchmark interest rate to 0.5% from 0.25%.
The quarter-point hike was largely expected by the markets. But the vote was split.
Four of the nine Monetary Policy Committee members dissented, voting for a 50-basis-piont hike to 0.75%.
"We expect inflation to rise to around 7% in the spring," the MPC said.
The pound (NYSEARCA:FXB) is up 0.3% against the U.S. dollar. The gilts yield curve is flattening, with two-year yields jumping 12 basis points to 1.15%, hitting levels not seen since 2011.
Markets are now pulling rate expectations for the U.K. forward, with the consensus seeing rates climbing to 1% in May, according to Hammerstone Markets.
"A significantly more hawkish decision from the Bank of England than we had been expecting, with 4 of the 9-member MPC voting in favour of an immediate 50bps rate rise, outright sales of corporate bonds to begin, and with inflation forecast to remain north of the 2% target in two years' time," Michael Brown, senior analyst at Caxton, said. "Clearly, the intense nature of price pressures has spooked the Old Lady into acting. Sterling has gained ground on the decision, largely amid increasing signs that the BoE want to take an aggressive approach to tightening policy."
"The UK has an unusual combination of simultaneous interest rate and tax increases," UBS chief economist Paul Donovan wrote. "The UK government intends to smooth energy prices lower (subsidize now, charge next year). The resulting lower inflation will save the government money this year, lowering interest payments on its sizeable inflation-linked debt."
"Bonkers - MPC voted 5-4 to raise rates Tenreyro switched but amazingly Haskel, Mann, Ramadan and Saunders voted for a 50 bp rise," former MPC member Danny Blanchflower tweeted. "Ceasing to invest maturing assets also looks an error of classic proportions as epop & LFPR & consumer confidence fall and real wages falling by 2%."
The BoE surprised the market raising rates to 0.25% in December.
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Power companies look to be able to increase rates by 50%, I believe shortly, after raising rates by 12% last October…British people getting ready to pay some real increases!
And you got very poor almost bankrupt regions hard smack down the middle. Think roughly line [Arkansaw, Alabama, Missiouri, Kentucky, Mississipi, New Mexico...] and the like.
You're easily taking incomes up to 2-3x higher in the coastal states and northern states than middle/inland U.S..So if you put in a rate hike? Rich locations wont care much. Others will forcibly move into their minivan cause the bills can no longer be paid.
So its a delicate balancing act between evils. Hike interests and the poor suffer with even higher bills (mortage etc), or keep interest equal and watch the poor suffer trough inflation going higher.The same goes for Europe/ECB. You got the north that is very rich and propering, and where rate hikes are needed and are easily handled. Then south thats near bankrupt where an interest hike needs to be paid somehow, except there aint no money.
Four of the nine Monetary Policy Committee members dissented" even tough hikes should be at least 1% to tame hot inflation even if it crashes the markets, shouldn't matter
There is an energy crisis in Europe. Not because they're a bunch of greenies but rather purely because Russia is so powerful
