Jun 22, 2023 - Economy

Bank of England shocks with huge interest rate hike

Photo: Vuk Valcic/SOPA Images/LightRocket via Getty

The Bank of England said it would raise interest rates by a half percentage point Thursday, surprising economists and traders that anticipated a smaller move.

Why it matters: The central bank returned to hiking rates by an outsized amount as the U.K. faces the worst inflation pressures of any major developed nation.

What they're saying: In a release, Bank of England officials said recent economic data suggested "more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand."

  • Analysts expected the central bank to hike rates by a quarter percentage point.

Catch up quick: The latest inflation data underscored the U.K.'s struggle to stamp out rapid price increases.

  • The nation's Consumer Prices Index rose by 8.7% in the 12 months through May, unchanged from the prior month, its statistics agency said on Wednesday.
  • But the core measure that excludes energy, food, alcohol and tobacco increased by 7.1%, up from 6.8% in April — an and a new high since the country's inflation struggles began.

The bottom line: Major global central banks, including the Bank of England, had backed off outsized interest rate hikes — opting to return to smaller increment moves as it looked like the worst of inflation was behind them.

  • That's no longer the case for the Bank of England, the latest sign that hot inflation is pushing economic policymakers to raise rates more quickly — and to higher levels — than initially expected.
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