Having recorded a stronger-than-expected growth in economic activity, members of the Monetary Committee Bank of England they voted by a 7-2 majority to raise him interest rate by 25 basis points to 4.5%. This step is in line with our estimates, as well as those of economists and market participants. Two of the nine members who voted to keep the interest rate in February did so yesterday.

Monetary policymakers kept their forecasts for the direction of monetary policy largely unchanged from February, noting that “the Monetary Committee will continue to closely monitor signs of continued inflationary pressures, including tight labor market conditions.” , the trajectory of wage growth in as well as inflation in the service sector. If there are signs of additional inflationary pressures, further tightening of monetary policy will be required.” While these forecasts do not commit the Bank of England to further rate hikes in advance, they do signal that the bank will continue to focus on medium-term inflation to shape its decisions rather than forecasts of significant deflation.

Ahead of the meeting, we estimated a 30 percent chance of a further 25 basis point rate hike at the June 22 meeting. If inflation and other economic data fall, as the Bank of England predicts, monetary policymakers will move to keep interest rates at current levels. The minutes of the May meeting summarize the recent revision of his forecasts as follows:

“Economic activity was weaker than expected in February and the Monetary Committee now believes demand is higher than forecast in its February report. The improved outlook for the UK economy reflects strong global growth, low energy prices and fiscal support from the spring budget.” The Bank of England now projects real GDP growth of 0.25% in 2023, 0.75% in 2024 and 0.75% in 2025. And inflation will fall to 5% in 2023, 2.25% in 2024 and 1% in 2025.

* Mr. Calum Pickering is an economist at Berenberg Bank.