AGL 38.26 Increased By ▲ 0.56 (1.49%)
AIRLINK 141.00 Increased By ▲ 6.43 (4.78%)
BOP 5.44 Decreased By ▼ -0.03 (-0.55%)
CNERGY 3.84 No Change ▼ 0.00 (0%)
DCL 7.60 Increased By ▲ 0.17 (2.29%)
DFML 46.19 Increased By ▲ 0.72 (1.58%)
DGKC 77.50 Decreased By ▼ -0.50 (-0.64%)
FCCL 29.28 Decreased By ▼ -0.01 (-0.03%)
FFBL 56.50 Increased By ▲ 0.50 (0.89%)
FFL 8.60 Increased By ▲ 0.05 (0.58%)
HUBC 98.69 Increased By ▲ 1.45 (1.49%)
HUMNL 14.10 Decreased By ▼ -0.09 (-0.63%)
KEL 3.83 Decreased By ▼ -0.07 (-1.79%)
KOSM 7.39 Increased By ▲ 0.60 (8.84%)
MLCF 36.70 Increased By ▲ 0.40 (1.1%)
NBP 68.90 Decreased By ▼ -0.80 (-1.15%)
OGDC 169.50 Increased By ▲ 2.50 (1.5%)
PAEL 25.40 Increased By ▲ 0.07 (0.28%)
PIBTL 6.56 Decreased By ▼ -0.18 (-2.67%)
PPL 131.00 Increased By ▲ 0.50 (0.38%)
PRL 25.11 Decreased By ▼ -0.28 (-1.1%)
PTC 15.64 Increased By ▲ 0.39 (2.56%)
SEARL 58.00 Increased By ▲ 0.30 (0.52%)
TELE 6.90 Increased By ▲ 0.11 (1.62%)
TOMCL 35.24 Increased By ▲ 0.45 (1.29%)
TPLP 7.73 Increased By ▲ 0.13 (1.71%)
TREET 14.10 Increased By ▲ 0.19 (1.37%)
TRG 44.69 Decreased By ▼ -0.31 (-0.69%)
UNITY 25.41 Increased By ▲ 0.33 (1.32%)
WTL 1.21 No Change ▼ 0.00 (0%)
BR100 9,152 Increased By 84.1 (0.93%)
BR30 27,234 Increased By 208.3 (0.77%)
KSE100 85,840 Increased By 579 (0.68%)
KSE30 27,234 Increased By 222.5 (0.82%)

LONDON: The Bank of England raised its key interest rate by a quarter of a percentage point to a 15-year peak of 5.25% on Thursday, and gave a new warning that borrowing costs were likely to stay high for some time.

Unlike the U.S. Federal Reserve or the European Central Bank - which also both raised rates by a quarter-point last week - the BoE’s Monetary Policy Committee gave little suggestion that rate hikes were about to end as it battles high inflation.

“The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target,” the BoE said in fresh guidance about the outlook for borrowing costs.

“Some of the risks of more persistent inflationary pressures may have begun to crystallise,” it added.

British inflation hit a 41-year high of 11.1% last year and has fallen more slowly than elsewhere, standing at 7.9% in June, the highest of any major economy.

Economists polled by Reuters last week forecast BoE rates would peak at 5.75% later this year. The BoE’s own forecasts were based on recent market assumptions - which have now eased somewhat - that rates would peak at over 6% and average nearly 5.5% over the next three years.

“Inflation hits the least well-off hardest and we need to make absolutely sure that it falls all the way back to the 2% target,” Governor Andrew Bailey said.

Sterling briefly dipped after the data and financial markets moved to price in a two thirds chance of another quarter-point interest rate rise to 5.5% in September.

“One weak data point will not be enough for the Bank to be satisfied that inflation is now on a sustainable trajectory. We expect at least one more 25bps rate hike in September,” said Thomas Pugh, an economist with accountancy firm RSM UK.

Three-way split

Policymakers voted 6-3 for the increase, but were split three ways on the decision for the first time this year. Two MPC members - Catherine Mann and Jonathan Haskel - voted for a half-point increase this month, while Swati Dhingra again voted for no change, warning of the risk of smothering the economy.

Markets had seen a roughly one-in-three chance of a bigger increase to 5.5%, which would have repeated June’s big rise.

The BoE forecast inflation would fall to 4.9% by the end of this year - a faster decline than it had predicted in May.

This will relieve Prime Minister Rishi Sunak, who pledged in January to halve inflation this year, a goal which had looked challenging.

“If we stick to the plan, the Bank forecasts inflation will be below 3% in a year’s time without the economy falling into a recession,” finance minister Jeremy Hunt said after the BoE’s announcement.

However, the BoE forecasts inflation will be slightly slower to fall from late next year. Inflation does not return to its 2% target until the second quarter of 2025, three months later than it forecast in May.

The BoE said it was incorporating more of the upside risks to inflation which the MPC saw in May into its central or “modal” forecast, despite a bigger-than-expected fall in inflation in June.

Services price inflation - which the BoE said offered a signal on longer-term price trends - was projected to stay high, and wage growth at the end of this year was expected to be 6%, up from May’s forecast of 5%.

Wage rises had been a bigger driver of high inflation than companies’ profit margins, the BoE said.

The BoE, which noted the economy’s recent “surprising resilience”, barely changed its growth forecasts from three months ago, with the economy due to expand a meagre 0.5% in 2023 and 2024, and just 0.25% in 2025.

Mortgage costs have hit their highest since 2008, weighing on house-building. The BoE forecast housing investment would fall 5.75% this year and 6.25% in 2024.

Comments

Comments are closed.