The Bank of England hiked its key interest rate as part of a package of measures to contain inflation that’s on course to top 7 per cent, as policy makers came within a whisker of delivering an unprecedented 50-basis point increase.
The increase to 0.5 per cent from 0.25 per cent was supported by five of the bank’s nine policy makers. In a surprise move, four voted for a bigger hike, to 0.75 per cent, an increase that has not been seen since the bank gained independence in 1997. All said further modest tightening would be needed in coming months.
Officials also signalled the start of a new era for the £895 billion of bond holdings amassed over the past decade under quantitative easing, and unanimously voted to begin the process of shrinking the balance sheet.
The BOE will immediately stop reinvesting the proceeds of expired gilts, allowing more than £200 billion to run off by 2025, and announced plans to offload the entire £20 billion stock of corporate bonds by the end of 2023.
“Some further modest tightening is likely to be appropriate in the coming months” if the economy evolves as the BOE expects, the rate-setting committee added.
Stressing its inflation-fighting mandate, the BOE said that “the remit is clear the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework”.
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