The Bank of England raised interest rates to 4.5% on Thursday, its tenth consecutive hike, as it battles persistent inflation but signaled that the end of its tightening cycle may be near.
The Monetary Policy Committee (MPC) voted 7-2 for the quarter-point increase, with two members voting to hold rates steady.
“Inflation has fallen more sharply than expected,” the BoE said in a statement, but added that “domestic price pressures remain strong.”
The central bank’s latest forecasts show inflation falling back to the 2% target in the second quarter of 2024, a year earlier than previously predicted.
However, the BoE warned that “risks to the inflation outlook remain elevated” and that it would continue to monitor the situation closely.
The decision to raise rates was widely expected by economists, who have been calling on the BoE to act decisively to curb inflation.
The UK inflation rate stood at 10.1% in March, well above the BoE’s target.
The latest rate hike is likely to increase borrowing costs for households and businesses, but the BoE said it was necessary to bring inflation under control.
“We are committed to bringing inflation back to target,” BoE Governor Andrew Bailey said in a press conference. “We will do what is necessary to achieve that.”
However, Bailey also hinted that the BoE may be nearing the end of its tightening cycle.
“We are closer to the peak of this tightening cycle than we are to the beginning,” he said.
The BoE’s decision comes as other central banks around the world are also raising interest rates to combat inflation.
The U.S. Federal Reserve raised its benchmark interest rate by a quarter percentage point last week, while the European Central Bank is also expected to continue its rate-hiking campaign.
The global economic outlook remains uncertain, with concerns about a potential recession in some major economies.
The BoE’s latest decision is likely to be closely watched by investors and policymakers alike, as it will provide further clues about the direction of monetary policy in the UK and beyond.
