The Bank of England raised its benchmark interest rate by a historic 75 basis points in November – the biggest increase since 1989.
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LONDON – The Bank of England raised its key interest rate by 50 basis points on Thursday, signaling that more tightening will be needed to curb inflation.
The Monetary Policy Committee voted 6-3 in favor of raising half a percentage point, which takes the bank rate to 3.5%. The increase marks a decrease from November̵[ads1]7;s increase of 75 basis points.
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“The labor market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that may indicate greater persistence and thus justify a further vigorous monetary policy response,” the MPC said in its statement on Thursday.
“The majority of the committee considers that if the economy were to develop broadly in line with the estimates from the monetary policy report from November, further increases in the bank rate may be necessary for a sustainable return of inflation to the target.”
The bank now expects UK GDP to contract by 0.1% in the fourth quarter of 2022, 0.2 percentage points stronger than in the November report.
After hitting a 41-year high in October, the annual rise in the UK consumer price index slowed to 10.7% in November, new figures revealed on Wednesday.
The decline mirrored signs in other major economies such as the US and Germany that inflation may have peaked, although it remains uncomfortably high and well above the Bank of England’s 2% target.
The central bank is trying to pull inflation back toward its target, while remaining sensitive to a weakening economy characterized by several unique domestic pressures, as well as global headwinds.
This was confirmed in the latest UK labor market data, published earlier this week, which showed a rise in both unemployment and wage growth, while economic inactivity and long-term sickness rates also remain historically high.
The MPC said that while labor demand has begun to ease, the labor market remains tight. Unemployment rose slightly to 3.7% in the three months to October. Wage pressures are a key focal point when policymakers assess the inflation outlook.
“Vacancies have fallen back, but the proportion of vacancies in relation to unemployment remains at a very high level. Annual growth in ordinary wages in the private sector picked up further in the three months to October, to 6.9%, 0 .5 percentage points stronger than expected at the time of the November report,” it said.
The bank also maintained its quantitative easing targets, which include plans to reduce its balance sheet by 80 billion pounds ($99 billion) over a 12-month horizon through 40 billion pounds of active asset sales and terminal reinvestment of maturing bonds.
This is news and will be updated soon.