As expected the Bank Of England has decided to raise key interest rate by 25 pbs to 4% in 8-1 vote. One member voted to increase Bank Rate by 0.5 percentage points, to 4.25%.
Key points:
- BoE has raised Bank Rate by 0.25 percentage points to 4%
- Conflict in the Middle East has disrupted the transportation and supply of energy, raising its price and pushing up households’ motor fuel costs and utility bills
- Inflation has risen to 3.5% and we expect it to rise even further to about 5% by mid-2027 as higher energy prices have their knock-on effects; higher bills could force businesses to increase their prices to cover the cost, for example
- So far, there is little evidence of significant knock-on effects on other prices and wages; but energy costs have been high for long enough now that we expect those knock-on effects to eventually kick in
- The economy has been more resilient and activity has been stronger than expected – this is good news, but it adds to the risk that higher energy prices affect other prices; so, we must act now to reduce their impact
- Traders add to BoE rate bets, see 50% chance of a hike in December (before decision it was 35%)
The GBPUSD pair saw some bullish reaction to the BoE decision and further comments included with post- decision report.Source: XTB
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