- Prior 3.75%
- Bank rate vote 0-7-2 vs 0-7-2 expected (Pill and Greene voted to hike rate by 25 bps)
- BoE repeated that MPC stand ready to act as necessary to ensure CPI meets 2% target in the medium term
- BoE cuts inflation outlook for this year, sees slightly faster underlying growth versus April projections
- Outlook for energy prices remains uncertain
- The labour market continues to loosen, and signs of a weakening economy could contain inflationary pressures
- Full statement here
Coming into the meeting, the market was pricing 35 bps of tightening by year-end with 58% chance of a rate hike in September. There's nothing new in the statement as it's basically a copy-pasted version of the one we got in April. Traders kept rate hike bets steady around 35 bps for this year following the decision.
From the Minutes:
For six members (Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli, Dave Ramsden and Alan Taylor), recent data outturns provided some further evidence that underlying disinflation had been on track pre-conflict. Upside risks to energy prices had receded, although they remained. The higher interest rates facing households and businesses were already acting to reduce inflation over time and therefore a hold in Bank Rate at this meeting was appropriate.
There was nevertheless a range of views on how the energy shock might propagate and therefore the policy response that might be required in future. For one member (Catherine L Mann) upside inflation risks were more prominent across possible future outcomes, but an immediate increase in Bank Rate was not required given their view that policy tightening would transmit to the economy rapidly.
Two members (Megan Greene and Huw Pill) preferred a 0.25 percentage point increase in Bank Rate at this meeting. These members were less confident in the pace of the underlying disinflation pre-conflict. They were more concerned that households’ and firms’ greater attention to inflation outturns than in the past would lead to larger second-round effects for a given energy price profile. And they noted that the tightening in financial conditions could reverse in the absence of an increase in Bank Rate. Given significant uncertainty about the extent of second-round effects, they preferred to raise rates as part of a risk management strategy.
