London: The Bank of England raised interest rates for the 10th time in a row on Thursday but dropped its pledge to keep increasing them “forcefully” if needed and said inflation had probably peaked.
Softening their forecasts of recession this year, the BoE’s nine interest rate-setters voted 7-2 to increase Bank Rate to 4 per cent - its highest since 2008 - from 3.5 per cent. The move had been expected by most investors and economists.
The announcement comes a day after the US Federal Reserve slowed the pace of its rate hikes with a smaller quarter-point move, but said it expected further increases would be needed.
The BoE - which is trying to smother the risks from Britain’s 10 per cent inflation rate without deepening the expected recession - said its run of rate hikes going back to December 2021 were likely to have an increasing impact on the economy.
That should help to bring inflation down to about 4 per cent by end of this year, it said. Previously the BoE had forecast 2023 inflation at around 5 per cent.
“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required,” the central bank’s Monetary Police Committee (MPC) said.
That represented a signal to investors that the central bank’s sharp run of rate hikes might be coming to an end.
Previously the BoE has said that “it will respond forcefully, as necessary” to signs of further inflation pressure, and “further increases in Bank Rate may be required”.
The BoE sees inflation falling below its 2 per cent target in the second quarter of 2024, but it warned there were upside risks to this forecast from persistent labour market pressures and higher-than-expected core and domestically generated inflation.
Immediately before Thursday’s announcement investors were largely pricing Bank Rate to peak at 4.5 per cent in the middle of the year, though with a significant chance of an earlier halt at 4.25 per cent as Britain’s economy is likely to lag behind other rich nations this year.
