The Bank of England on Thursday hiked interest rates by 50 basis points and dialed back some of its previous bleak economic forecasts.
The Monetary Policy Committee voted 7-2 in favor of a second consecutive half-point rate hike, taking the main Bank rate to 4%, but indicated in its decision statement that smaller hikes of 25 basis points may be in the cards in coming meetings. The two dissenting members voted to leave rates unchanged.
Crucially, the Bank also dropped the word “forcefully” from its rhetoric around continuing to raise rates as necessary to rein in inflation.
“Annual CPI inflation is expected to fall to around 4% towards the end of this year, alongside a much shallower projected decline in output than in the November Report forecast,” the Bank said.
U.K. inflation came in at 10.7% in December, down slightly from the previous month’s 41-year high of 11.1% as easing fuel prices helped to ease price pressures. However, high food and energy prices continue to squeeze U.K. households and drive widespread industrial action across the country.
Thursday’s revised economic forecasts projected a shorter and shallower recession than previously expected.
The Bank previously forecast that the U.K. economy was entering its longest recession on record, but GDP unexpectedly grew by 0.1% in November after also exceeding expectations in October, suggesting that the impending recession may not be as long or as deep as previously feared.
However, the International Monetary Fund on Monday downgraded its projection for U.K. GDP growth in 2023 to -0.6%, making it the world’s worst performing major economy, behind even Russia, CNBC reports.
