The Bank of England raised its key interest rate. According to Thursday’s announcement, the British central bank’s monetary council increased its benchmark rate by 0.25 percentage points to 0.50 percent.
The Bank of England has recently implemented interest rate increases for more than a decade, July 2007.
According to Thursday’s announcement, the current rate-of-interest rate decision was unanimous: nine of the nine members of the Monetary Board voted to raise the base rate by two, two for interest rates.
However, the market and analysts in London have for a long time been able to predict the Bank of England’s interest rate increase for a considerable time since the British central bank’s communications have been increasingly focusing on tightening in recent months.
Mark Carney, Canadian Governor of the Bank of England, recently said that “a relatively short period of time” is expected to raise the base rate, as the central bank is worried by inflationary pressures suggesting that “irresponsible” credit outflows could begin again in the UK economy.
Carney, pointing to the new inflation report released at Thursday’s announcement of interest rate hike, said that the Bank of England expects the remaining low capacity surpluses still in the UK economy to run out in the coming years, and the inflationary pressures on domestic inflation are likely to increase.
The governor of the British central bank stressed at Thursday’s press conference that the UK unemployment rate was 42-year low and inflation surpassed the Bank of England’s 2% target.
Twelve-month British inflation accelerated to 3 percent in September, and Bank of England forecasts the annual inflation rate to exceed 3 percent in October.
Meanwhile, the growth rate of the UK economy is faster than expected.
According to a forecast released by the British Statistical Office (ONS) on Monday, the UK’s total domestic product (GDP) rose by an average 0.4 percent in Q3 quarterly.
The preliminary consensus showed a 0.3% quarterly increase for the three months ended September.
Carney said on Thursday’s press conference: in this environment, “the time has come to release the accelerator slightly”. The governor of the central bank suggested that the bank thinks the British economy needs a lesser degree of monetary stimulus than ever before.
Following the Bank of England’s previous increase in interest rates in July 2007, the UK central bank’s benchmark peaked at 5.75 percent.
However, as a result of the credit market and banking crisis that followed, the British central bank started a rapid rate cut with a huge quantitative easing program and lowered the base rate by 0 March 2009 to 0.50 percent.
Due to the shock of a referendum on the United Kingdom’s EU membership, which was won by the rebels in June last year by a narrow majority, the bank posted another 0.25 percentage points to 0.25 percent in late August, up to Thursday’s raise – the depth record of interest of the Bank of England – lowered its benchmark rate.
The British central bank also raised 435 billion pounds (more than 150,000 billion forints) to the government-backed government bond buying framework for the $ 375 billion pegged out of the year and issued a ten billion-strong asset purchase program for investment grade corporate bonds.
The framework of these asset purchase programs has not been modified by the Monetary Council at its current interest rate meeting.
However, the Board has clearly stressed that the monetary policy of the Bank of England also strongly promotes job creation and real economy activity after interest rate hikes, at the new interest rate level.
The Monetary Council also announced that if future interest rates are going to increase, their pace will be gradual and the rate will be limited.
As a result of this issue of the announcement, the pound has weakened more than one percent against the dollar and the euro, despite the rise in interest rates, as market participants have expected a stronger tightening of the Bank of England.
The inflation report highlights that the Bank of England’s base rate would rise to only 1.00 percent by the end of 2020, according to a predictable interest rate path from the current futures market interest rates.
Source: MTI / Image: uk.reuters.com /