With inflation stubbornly high and reflecting the"primacy of price stability" in the policy framework, the Bank of England raised Bank Rate by a greater-than-expected 50 basis points to 5.00 percent. This is the 13th hike in a row but follows two 25-point moves in March and May to mark the first 50-point move since February. Once again the Monetary Policy Committee's vote was not unanimous as the two main doves (Swati Dhingra and Silvana Tenreyro) continued to call for no change leaving another 7-2 majority in favour of tightening. The other seven members all voted for 50 points.

The BoE is trying to catch up to the market, noting in today's statement that back at May's meeting the market-implied three-year path for Bank Rate averaged just over 4 percent but now averages, due to a"material" rise in gilt yields, 5-1/2 percent. The bank further noted that mortgage rates have risen"notably" and that sterling has appreciated further.

Only yesterday, the government reported an 8.7 percent annual inflation rate in May, unchanged from April and disappointing expectations for cooling to 8.4 percent. But the statement's first reference to inflation is average weekly earnings, data released last week that increased to 7.5 percent in the three months to April which was a full 1/2 point above expectations. On the CPI, the bank noted not only the headline rate but also services inflation of 7.4 percent in May, also a 1/2 point above expectations and projected to remain"broadly unchanged" in the near term.

Yet in a note of optimism, the statement stresses that inflation for core goods, though also running stronger than expected, is"less likely to imply persistent inflationary pressures" and is expected to decline later this year supported by cost and price indicators in the supply chain; producer output price inflation has fallen"very sharply" in recent months, the statement reads. For the CPI overall, the bank expects it to"fall significantly" during the course of the year mainly reflecting developments in energy prices.

Active QT continues in the background and the bank indicated that as of June 21, the total stock of QE assets had been reduced to £806 billion, comprising £805 billion of UK government bonds and £0.8 billion of sterling non-financial investment-grade corporate bonds. Sales will proceed as previously outlined.

"The MPC recognises that the second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge. There has been significant upside news in recent data that indicates more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand," according to the statement.

Citing the need to return inflation to its 2 percent target, the MPC said if evidence emerges that the price pressures will prove more persistent,"then further tightening in monetary policy would be required". Today's decision underscores the inflation-fighting commitment of the BoE, a factor that may boost confidence in the UK outlook however much in the near term it may rattle Number 10.

Stubbornly high inflation and accelerating wage growth apparently leave the BoE little choice but to hike Bank Rate again for what would be the 13th consecutive meeting. A third straight 25-point move is the consensus.

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.