The Bank of England (BoE), the UK’s monetary authority, decided this Thursday to raise interest rates to 4.5%, choosing for the second time in a row a moderate increase of 25 basis points (a quarter of a percentage point), similar. To the decisions taken last week by the US Federal Reserve and the European Central Bank.
The decision was not taken unanimously. On the nine-member committee, two voted against the increase, arguing for keeping the rate at 4.25%.
The BoE started the cycle of rate hikes in December 2021 and has already carried out 12 increases with a cumulative increase of 440 basis points (4.4 percentage points), higher than that of the European Central Bank (375 points), but less than that achieved by the Fed (500 points). a point).
The option of more aggressive increases started in August of last year with half percentage point increases, and up to 75 basis points in November of last year. In March 2023, the team led by Andrew Bailey decided to reduce the increase to 25 basis points.
The Bank of England began tightening monetary policy after cutting interest rates to an all-time low of 0.1% during the pandemic in 2020.
Almost recession in the first half
In this meeting, the committee was surprised to maintain the inflation rate above 10% in the first quarter of the year. It fell in March to 10.1%, but remained at higher levels than expected in previous meetings. The inflation peak for this cycle should have been around 11.1% in October last year. The dynamics of food inflation is particularly alarming, close to 20%, confirms the statement from the meeting.
The committee now considers that the process of lowering inflation towards double-digit levels should be achieved from April. The April estimate will be published on May 24 only.
However, inflation above 10% is interspersed with an economy that should roughly slow in the first half of the year. The Bank of England forecasts a slight growth of 0.2% for the first six months of the year as a whole.
In this context of almost stagnant inflation, the Bank of England expects interest rates to peak around 4.75% in the fourth quarter of 2023. That would mean a further hike of just 25 basis points, followed by a pause.
In May, the rule is to go up by 25 points
Of the 16 central bank meetings actually held in May, 11 were to raise interest rates and all were moderate, just 25 basis points (a quarter of a percentage point). There are already as many rate hikes as in the whole month of April.
Most notable in these first two weeks of May, before Thursday’s meeting in London, were the decisions to raise key interest rates by 25 points by the US Federal Reserve, the European Central Bank, the Bank of Norway and the Reserve Bank of Australia. .
One central bank decided to cut interest rates, the Central Bank of Georgia (cut the rate by half a percentage point), and four banks chose to leave interest rates unchanged.
