LONDON: The European Central Bank and Bank of England raised its key interest rates on Thursday and indicated that more hikes were likely, despite a looming recession.
The BoE’s Monetary Policy Committee voted 6-3 to raise Bank Rate to 3.5% - its highest since 2008 - from 3.0% and said more increases may be required to tackle what it fears could prove to be persistent domestic inflation pressure from prices and wages.
But only one policymaker, Catherine Mann, wanted to match November’s bigger 0.75 percentage point increase - the BoE’s largest in more than 30 years - and two MPC members voted to keep rates on hold.
Sterling weakened against the US dollar after the BoE’s decision, falling to around $1.23, and it also declined against the euro. British government bond prices were little changed.
“While the 50-basis-point increase in the Bank rate was as expected, the extent of the divisions across the committee is an eye-opener,” Philip Shaw, an economist with Investec, said.
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