Bank of England Raises Rates to Highest Level Since 2008

The central bank's outlook also improved since its last monetary policy report in February

Street in City of London with Royal Exchange, Bank of England and new modern skyscrapers.

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The Bank of England raised interest rates in the U.K. to their highest level in 15 years Thursday as the central bank tries to bring some of Western Europe’s stickiest inflation to bear. 

Key Takeaways

  • The U.K.'s Monetary Policy Committee raised rates 25 basis points to 4.5%, the highest they've been since 2008.
  • The central bank no longer expects GDP to shrink this year, citing resilient economic activity, lower energy prices, and support in the government's Spring Budget.
  • Policymakers anticipate rates to peak at 4.75% in the second half of 2023.

Members of the BoE’s Monetary Policy Committee voted 7-2 to raise its bank rate 25 basis points to 4.5%, with two members preferring to leave rates at 4.25%. 

The bank also updated its projections for the U.K.’s economy, saying it no longer expects the country to enter a recession this year, as it had forecast in February. Instead, GDP is forecast to remain flat in the first half of this year and grow nearly 1% by mid-2024. The bank said its GDP forecasts assume one more rate hike to 4.75% in the fourth quarter and gradual cuts to 3.7% in 2025.

The BoE came out of the gate faster than most other central banks in its fight against inflation. It nudged interest rates up 15 basis points to 0.25% in December 2021, months before the Federal Reserve and the European Central Bank issued their first rate hikes. The bank has raised rates steadily since then. 

U.K. inflation has remained stubbornly high, at an annual rate of 10.1% in March. For comparison, rates in the U.S. and EU in the same period were 5% and 8.3%, respectively.

Article Sources
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  1. Bank of England. "Monetary Policy Report - May 2023."

  2. Bank of England. "Interest rates and Bank Rate."

  3. Office of National Statistics. "Consumer price inflation, UK: March 2023."

  4. Eurostat. "Annual inflation down to 6.9% in the euro area."

  5. Bureau of Labor Statistics. "Energy prices down 6.4 percent from March 2022 to March 2023."

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