Bank of England raises rates by a quarter point to 1.25%

Jun. 16, 2022 7:04 AM ETInvesco CurrencyShares Euro Trust ETF (FXE)By: Kim Khan, SA News Editor3 Comments

Bank of England in London

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The Bank of England raised its benchmark rate by 25 basis points to 1.25% Thursday.

The Monetary Policy Committee voted 6-3 to hike by a quarter point, with three members voting for what would have been the first 50-basis-point hike since 1995.

Pound sterling (NYSEARCA:FXE) extended losses agains the dollar and is down 1% to 1.2056. The 10-year gilt yield added to gains and is up 8 basis points to 2.55%.

"The BoE did as expected this lunchtime, hiking rates by 25bps, with a handful of MPC members again dissenting in favor of a larger hike," Caxton analyst Michael Brown said. "However, despite a caveated pledge to 'act forcefully' on inflation if necessary, such a modest move means the Bank have lost further credibility, and look even further behind the curve than their G10 peers, especially after a 75bps hike from the Fed last night, and this morning's 50bps SNB move."

"Sterling, has, consequently softened, with further downside looking likely in the near-term, as growth slows, inflation persists, and the BoE turn increasingly cautious."

"In the MPC’s central projections in the May Monetary Policy Report, UK GDP growth was expected to slow sharply over the first half of the forecast period and, although the labour market was expected to tighten slightly further in the near term, the unemployment rate was projected to rise to 5½% in three years’ time," the MPC said in its statement.

"CPI inflation was expected to average slightly over 10% at its peak in 2022 Q4. Conditioned on the rising market-implied path for Bank Rate at that time and the MPC’s forecasting convention for future energy prices, CPI inflation was projected to fall to a little above the 2% target in two years’ time, largely reflecting the waning influence of external factors, and to be well below the target in three years, mainly reflecting weaker domestic pressures," it added.

The BoE move came after the Fed boosted the fed funds rate by 75 basis points.

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