The Monetary Policy Committee voted 8-1 to lift the benchmark rate to 4%, with lone dissenter Catherine Mann favoring a larger half-point adjustment. Officials also upgraded their UK economic growth projections to 1.6% this year and 1.3% next year, driven by AI investments and recent budget measures. However, the central bank warned that consumer price inflation will not subside to its official 2% target until late 2028.
Key points
British inflation is projected to peak at 4.8% next year and will not return to the 2% ta…: British inflation is projected to peak at 4.8% next year and will not return to the 2% target until 2028.
Policymakers warned that additional rate increases may be necessary in the near term unle…: Policymakers warned that additional rate increases may be necessary in the near term unless Middle East tensions subside.
Upgraded economic growth expectations have provided room for monetary officials to focus…: Upgraded economic growth expectations have provided room for monetary officials to focus on combatting persistent energy-driven inflation.
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British inflation is likely to reach around 5% in the middle of next year, the BoE said, more than double the central bank's target and a blow for new Prime Minister Andy Burnham who has sought to ease cost of living pressures.
While there was little evidence so far of faster inflation outside sectors directly affected by higher energy costs, the BoE said the amount of inflation pressure coming down the road from months of high energy prices required a rate rise now.
"Today's increase shouldn't be seen as the first in an inevitable long sequence of hikes. But unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase," Governor Andrew Bailey said.
The central bank's Monetary Policy Committee voted 8-1 to raise rates to 4% from 3.75%, but in contrast to expectations in a Reuters poll, the dissent came not from a policymaker seeking to keep rates on hold but one seeking a bigger hike.
Catherine Mann, who said last month that the BoE had been slow to reassure markets…
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