Base rate hiked for the 13th time in a row and hits five per cent

by Aaron Strutt

Jun 22 2023

The Bank of England (BoE) has increased the base rate by 50 basis points to 5% — its 13th consecutive rise. Its Monetary Policy Committee (MPC) voted by a majority of 7–2 to increase Bank Rate to 5%. Two members preferred to maintain Bank Rate at 4.5%.

The rate hike was higher than many people expected, so the Bank of England has repeated its message about dampening inflation, with the Consumer Price Index stuck at 8.7% — significantly higher than its 2% target.

Andrew Bailey, Governor of the Bank of England, said: "We know this is hard - many people with mortgages or loans will be understandably worried about what this means for them. But if we don't raise rates now, it could be worse later."

Minutes from the Monetary Policy Committee's latest meeting state that last month the "market-implied path for Bank Rate averaged just over 4% over the next three years. Since then, gilt yields have risen materially, particularly at shorter maturities, suggesting a path for Bank Rate that averages around 5½%. The sterling effective exchange rate has appreciated further."

The Committee adds that twelve-month Consumer Price Index (CPI) inflation fell from 10.1% in March to 8.7% in April and remained at that rate in May. This is 0.3 percentage points higher than expected in the May Report. CPI inflation is predicted to "fall significantly" further during the year, mainly reflecting energy price developments.

Services CPI inflation is projected to remain broadly unchanged in the near term. Core goods CPI inflation is expected to decline later this year, supported by cost and price indicators developments earlier in the supply chain. In particular, annual producer output price inflation has fallen "very sharply" in recent months. Food price inflation is projected to fall further in the coming months.

The MPC's remit is "clear that the inflation target applies at all times", no matter what happens to the economy or people struggling to pay their mortgages.

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