The Bank of England (BoE) on Thursday surprised the market with a 50 basis points interest rate hike, its 13th consecutive increase to tackle persistent inflation that remains at a higher level.
The Monetary Policy Committee voted 7-2 in favor of a half percentage point increase, taking the benchmark of the bank’s base rate to 5%, which is higher than what economists expected for a 25bps rate hike.
Inflation in the United Kingdom remained higher than expected for a fourth month in May, data showed on Wednesday, as consumer prices rose, adding more pressure on the Bank of England on monetary policy.
The Office of National Statistics reports that in May, the Consumer Price Index (CPI) grew 8.7% from a year ago, which is the same as the previous month and higher than the 8.4% rise predicted by Reuters. Excluding the effects of food and energy price swings, core inflation increased to 7.1% from 6.8%.
On a monthly basis, headline CPI rose 0.7% month-over-month in May, while core inflation rose 7.1% year-over-year. This is up from 6.8% in April and the highest pace since March 1992.
“Rising prices for air travel, recreational and cultural goods and services, and second-hand cars resulted in the largest upward contributions to the monthly change in both the CPIH and CPI annual rates,” the ONS said.
Though it fell below 10% in April, inflation remains far above the Bank of England’s 2% target and well above consensus projections.
