Another MPC meeting and yet another increase in interest rates. As generally, but not wholly, expected, this month's announcement saw Bank Rate raised by a further 25 basis points to 4.50 percent, its highest level since April 2008. This was the twelfth hike in a row but, in line with recent meetings, the decision was not unanimous. The two main doves (Swati Dhingra and Silvana Tenreyro) continued to call for no change leaving another 7-2 majority in favour of tightening.

Active QT continues in the background and the bank indicated that as of 10 May, the total stock of QE assets had been reduced to £816 billion, comprising £813 billion of UK government bonds and £2.7 billion of sterling non-financial investment-grade corporate bonds. Sales will proceed as previously outlined.

The latest tightening reflects a notably more optimistic view of real economy and a slower decline in inflation. Indeed, the new GDP growth forecast shows no negative quarters and incorporates the sharpest upward revision in the MPC's history. GDP in the first half of 2023 is now expected to be flat and to expand modestly excluding strike and holiday distortions. In three years' time, total output is projected to be fully 2.25 percent higher than anticipated in the February Monetary Policy Report (MPR).

At the same time, the indicated its concerns about food and core goods prices and warned that the risk of persistence in price and wage setting has increased, potentially hindering efforts to return inflation to target. That said, CPI inflation is still seen at just 1.1 percent in the second quarter of 2025 and only 1.2 percent a year later. However, the committee continues to judge that the risks around the inflation forecast are skewed significantly to the upside. Note that the latest outlook is conditioned on a market-implied path for Bank Rate that peaks at around 4.75 percent in the fourth quarter of 2023 before ending the projection horizon at just over 3.25 percent.

Today's statement and minutes are hawkish and suggest most MPC members have become more concerned about the buoyancy of domestic price pressures. Wages and inflation remain key to interest rate decisions so next Tuesday's labour market report and the April CPI data due May 24th will be instrumental to how the MPC votes next month. Following March's surprisingly robust CPI, further strength here could well mean another hike in Bank Rate is just a few weeks away.

Having raised Bank Rate twelve straight times by a cumulative 415 basis points, the Bank of England is expected to raise it another 25 basis points at its May meeting. There are outside expectations for no change.

The Monetary Policy Committee (MPC) of the Bank of England (BoE) comprises nine experts, five of which are senior central bank executives and the other four are external members appointed by the Chancellor of the Exchequer. The MPC previously announced its monetary policy with regard to interest rates and any unconventional policy instruments every month but this was changed when the meeting schedule was truncated to eight a year in 2016. With a view to enhancing policy transparency, as of August 2015 the minutes of the MPC's deliberations, which indicate how each member voted, have been released alongside the policy announcement. Forward guidance was introduced in August 2013 but since then its framework has become increasingly qualitative and now provides only limited information about where policy might be headed.

The Bank of England determines interest rate policy at their Monetary Policy Committee meetings. These meetings currently occur during the first week of each month and are an influential event for the markets. Prior to each meeting, market participants speculate about the possibility of a change in the benchmark Bank Rate or unconventional monetary instruments. The MPC may or may not issue a post-meeting statement explaining its decisions in addition to the discussion’s minutes which, since August 2015, have been released alongside the policy announcement. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching. In the middle month of each quarter, the Bank publishes its Inflation Report, which provides a detailed analysis of economic conditions and the prospects for economic growth and inflation agreed by the MPC. This is now made available at the same time as the policy announcement and release of the minutes.

The Bank's monetary policy objective is to deliver price stability - low inflation - and, subject to that, to support the Government's economic objectives including those for growth and employment. A remit announced by the Chancellor in March 2013 hinted that the real economy may have a larger say in policy decisions going forward. Price stability is defined by the Government's medium-term inflation target of 2 percent, as measured by the annual change in the consumer price index. The foundation of the Bank's policy is the recognition of role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The Government's inflation target is announced each year by the Chancellor of the Exchequer in the annual Budget statement.

As in the United States, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on British markets - and to some extent those in Europe - can be dramatic and far-reaching. The interest rate set by the Bank of England, serves as a benchmark for all other rates. A change in the rate translates directly through to all other interest rates from gilts (fixed interest government securities named after the paper on which they were once printed) to mortgage loans.

The Bank of England sets an interest rate (Bank Rate) at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.