Bank of England raises UK interest rates to 4.5%
BOE warns inflation would be higher during 2023 than it had forecast
As expected, last Thursday, the Bank of England (BOE) hiked its benchmark interest rate by 25 basis points in an attempt to tame stubborn domestic price pressures.
The BOE raised interest rates for a record-breaking 12th successive meeting, taking the benchmark cost of borrowing to 4.5% and warning that inflation would be higher during 2023 than it had forecast.
The rate decision comes on the heels of persistently high inflation, with a recent negligible decline from an annual rate to 10.1% in March, leaving the UK with the highest inflation rate in the G7 group of advanced economies. The BOE’s inflation target remains two per cent.
Meanwhile, UK house prices unexpectedly fell in April as the BOE’s policy to raise interest rates to weaken persistently high inflation weighed on affordability and blunted demand, survey results by mortgage lender Halifax showed on Tuesday.
Average prices fell 0.3%, or around £1,000, in April compared with a month earlier, taking the typical UK house price to £286,896. This is about £7,000 below the peak last summer, but still about £28,000 higher than that in 2021. Recent house price movements have largely mirrored the short-term volatility seen in borrowing costs.
Finally, in the US, the inflation rate, as measured by the Consumer Price Index (CPI), eased more than expected last month, fanning speculation that the Federal Reserve could relax its aggressive monetary tightening stance.
The CPI, which measures the prices of a broad range of goods and services, increased 0.4% in April, broadly in line with estimates, according to a Labour Department report published on Wednesday. That equated to an annual increase in prices of 4.9%, down from March’s 5% and slightly less than the 5% estimate. The annual rate was also the lowest since April 2021.
On the other hand, the so-called core CPI, that excludes the volatile food and energy items, rose 0.4% month-on-month and to 5.5% from the year ago period, both in line with expectations.
“Today’s consumer inflation report supports the case for the Fed to seriously contemplate a pause in rate hikes in June, but does not support any near-term rate cuts,” said Scott Anderson, chief economist at Bank of the West in San Francisco.
This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta).