Bank of England raised rates by 0.25% to 5.50%
10 May 2007
10.05.07
As widely anticipated, the Bank of England raised rates by 0.25% to 5.50% at today’s meeting following an alarming jump in inflation figures for March. The headline CPI (3.1%y/y) rose to its highest level since comparable records began, prompting Governor King to write a letter to Gordon Brown explaining the reasons for inflation deviating more than 1% from the Bank’s 2% target.
This has led to speculation that rates will have to rise again this year particularly as the economy has shown few signs of slowing in the wake of the three hikes in the past nine months. Nevertheless, several MPC members, including Governor King, have made it clear that they expect CPI to fall back towards 2.0% in the coming months in response to the rapidly falling domestic energy costs.
We therefore expect rates to remain on hold during the summer months until the data becomes more persuasive towards further tightening.
(Research Desk - Ben Parkinson)