As expected, the BoE's August MPC meeting opted to deliver its fourteenth increase in interest rates in as many meetings. A 25 basis point rise to 5.25 percent put Bank Rate at its highest level since December 2007 and matched the market consensus. That said, few would have been particularly surprised by another 50 basis point hike. In the absence of arch-dove Silvana Tenreyro whose MPC term ended in July, Swati Dhingra was the sole dissenter calling for no change. However, both Jonathan Haskel and Catherine Mann wanted a full 50 basis points. Consequently, with newcomer Megan Greene predictably siding with the pack, the vote was 6-3.

Active QT continues in the background and the bank indicated that as of 2 August, the total stock of QE assets had been reduced to £786 billion, comprising £785 billion of UK government bonds and £0.8 billion of sterling non-financial investment-grade corporate bonds. Sales will proceed as previously outlined.

June's 50 basis point tightening was justified in the policy statement which said"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." However, the August edition notes while the labour market is still tight, there have been some indications that it is now loosening and earnings growth is seen falling over coming quarters. It also points out that inflation in June (7.9 percent) was lower than expected. That said, it continues to warn that inflation risks remain on the upside.

Meantime, underlying quarterly GDP growth was put at around 0.2 percent during the first half of the year and is seen holding close to that rate in the near-term. However, the bank pointed out that some recent indicators had shown signs of weakening.

Today's statement and minutes underline the still high level of uncertainty surrounding the outlook for the economy in general and inflation in particular. In itself this justifies the reversion back to a 25 basis point hike. Nonetheless, with inflation risks on the upside and two hawks wanting another 50 basis point move today, the policy bias remains in favour of additional tightening. Upcoming CPI and wage reports will need to be well behaved if Bank Rate is not to be hiked again in September.

Having raised Bank Rate by an unexpected 50 basis points in June, the BoE is expected to raise the rate by 25 points at its August meeting. The CPI has been coming down but was still at 7.9 percent in June.

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.