Bank of England lifts Bank Rate by 25bps; four MPC members preferred 50bps hike

The Bank of England’s policy-setting Monetary Policy Committee voted to hike the Bank Rate by 25 basis points to 0.50%.

Four members of the committee, Sir Dave Ramsden, Jon Haskell, Michael Saunders, and Catherine Mann voted for a 50 basis point increase to the Bank Rate. The other five members, including Governor Andrew Bailey, voted for a 25 basis point hike.

The central bank also confirmed it would be ceasing to reinvest maturing bonds bought under its QE programme.

Inflation outlook
Inflation has risen more sharply than the Bank of England expected when it released its previous Monetary Policy Report in November. The central bank has therefore decided to increase its forecast for CPI in the coming months.

“Twelve-month CPI inflation rose from 5.1% in November to 5.4% in December, almost 1 percentage point higher than expected at the time of the November Report,” the central bank said. “Inflation is expected to increase further in coming months, to close to 6% in February and March, before peaking at around 7¼% in April.”

The Committee judged that should inflation develop in line with the projections then “some further modest tightening in monetary policy is likely to be appropriate in the coming months”.

Market Reaction
The pound strengthened in immediate reaction with markets now expecting further tightening from the Bank of England in coming meetings.

EUR/GBP dropped below 0.8300 to trade at its lowest level since February 2020. GBP/USD moved back above 1.3600 to trade at its highest level since 20th January.

The yield on the United Kingdom 10-Year increased by over 12 basis points to 1.38% with the United Kingdom 2-Year yield increasing 10 basis points to 1.16%, the highest level since 2011.