BoE raises interest rates as inflation set to hit 8%

Commenting on how inflation is set to peak at around 8% in Q2 2022, Toby Sturgeon, Global Head of Fiduciary Investment Services at ZEDRA, said:

“The Bank of England have raised rates for third time since December from 0.50% to 0.75, back to its pre-pandemic levels as the central bank tries to tackle record inflation. The BoE expected inflation to peak in April at around 7.25% although it is now expected to increase further to around 8% in Q2 2022 due to increased energy prices. UK unemployment numbers were lower than expected on Tuesday at 3.9%. The tighter labour market was likely another factor in the bank’s decision to raise rates.

“Last month the vote was split 5-4 to the 25 basis point (bps) increase with the minority wanting a more aggressive 50bps rise. This month the vote was 8-1 to increase the rate by 25bps, with one member voting to keep rates at 0.5%.

“The increase today was widely anticipated with 2-year gilt yields rising in the run-up to the BoE’s announcement, followed by large falls after the news broke. Cable also fell on the news as expectations that there would be 170bps of further rate hikes this year dropped to an additional 120bps of rate hikes instead, following the announcement.”

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