People walk past a shop in Manchester, Britain, May 11, 2023. The Bank of England (BoE) on Thursday raised its benchmark interest rate by 0.25 percentage points to 4.5 percent, the highest since 2008. Its growth projections for the United Kingdom's (UK) economy were improved and inflation forecasts revised higher. (Photo by Jon Super/Xinhua)
LONDON, May 11 (Xinhua) -- The Bank of England (BoE) on Thursday raised its benchmark interest rate by 0.25 percentage points to 4.5 percent, the highest since 2008. Its growth projections for the United Kingdom's (UK) economy were improved and inflation forecasts revised higher.
ANOTHER HIKE
In Thursday's report, the BoE said it will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labor market conditions, the behavior of wage growth and services price inflation.
"If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required," it said.
The central bank's Monetary Policy Committee (MPC) refrained from signaling clearly that Thursday's interest rate increase will be the last one this year, Samuel Tombs, chief UK economist at Pantheon Macroeconomics consultancy, noted.
But the language in the minutes of the MPC meeting continues to suggest that it will hike again only if evidence emerges of more persistent inflationary pressures than anticipated in its forecasts, Tombs added.
Rate hikes have dealt a blow to the UK's house market. "With expectations that the bank could be forced to push rates up to around 5 percent, this would dampen down enthusiasm for expensive new house purchases," analyst Susannah Streeter at financial service company Hargreaves Lansdown said.
"As more and more people reach the end of mortgage deals and are forced to remortgage at higher rates, this has the potential to dent any newfound optimism in the market," Streeter said.
IMPROVED OUTLOOK
In its latest forecast, the BoE has turned more optimistic about the UK economy. "Economic activity was less weak than expected in February," it noted, adding that the UK's gross domestic product (GDP) is expected to be flat over the first half of this year.
"The improved outlook reflects stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labor market leads to lower precautionary saving by households," the central bank said.
A monthly comparison of independent projections published by the UK Treasury in late April also showed an average new forecast of 0.1 percent contraction for the UK economy in 2023, compared with a 0.5 percent decrease in March's prediction.
The MPC's expectation for inflation now falls back more slowly than in the February report, it added. According to its latest projection, inflation declines to a little above 1 percent at the two and three-year horizons.
In the short term, inflation is expected to fall sharply from April, in part as large rises in the price level one year ago drop out of the annual comparison, while food price inflation is likely to fall back more slowly than previously expected, the BoE said.
Food inflation in the UK rose to 15.7 percent in the year to April, up from 15 percent in March, the highest on record, an industry report from the British Retail Consortium said earlier this month.
"While interest rate rising may be nearly at an end, the cost-of-living crisis is far from over, with spiraling food prices likely to mean that it will take longer to get inflation down," James Smith, research director at the think tank Resolution Foundation, said.
Britain's two-year squeeze is on track to cost a typical family around 1,100 British pounds (1,377 U.S. dollars) a year, Smith added. ■
Luggage cases are seen for sale in a market in Manchester, Britain, May 11, 2023. The Bank of England (BoE) on Thursday raised its benchmark interest rate by 0.25 percentage points to 4.5 percent, the highest since 2008. Its growth projections for the United Kingdom's (UK) economy were improved and inflation forecasts revised higher. (Photo by Jon Super/Xinhua)
Fruits are seen in a market in Manchester, Britain, May 11, 2023. The Bank of England (BoE) on Thursday raised its benchmark interest rate by 0.25 percentage points to 4.5 percent, the highest since 2008. Its growth projections for the United Kingdom's (UK) economy were improved and inflation forecasts revised higher. (Photo by Jon Super/Xinhua)
A woman walks past a shop in Manchester, Britain, May 11, 2023. The Bank of England (BoE) on Thursday raised its benchmark interest rate by 0.25 percentage points to 4.5 percent, the highest since 2008. Its growth projections for the United Kingdom's (UK) economy were improved and inflation forecasts revised higher. (Photo by Jon Super/Xinhua)
A man walks past a shop in Manchester, Britain, May 11, 2023. The Bank of England (BoE) on Thursday raised its benchmark interest rate by 0.25 percentage points to 4.5 percent, the highest since 2008. Its growth projections for the United Kingdom's (UK) economy were improved and inflation forecasts revised higher. (Photo by Jon Super/Xinhua)