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London Markets: Bank of England makes consecutive interest rate hikes for first time since 2004


The Bank of England on Thursday announced its second consecutive interest-rate increase, the first time it’s done back-to-back hikes since 2004.

By a 5-to-4 vote, the Bank of England voted to take rates up by a quarter point to 0.5%. Inflation reached 5.4% in December, and prices are set to rise further. The U.K. regulator Ofgem separately announced a 54% jump in the energy price cap, a move that is effective in April.

The Bank of England forecasts inflation will peak at 7.25% in April.

“Given the current tightness of the labour market and continuing signs of greater persistence in domestic cost and price pressures, the Committee judges that an increase in Bank Rate of 0.25 percentage points is warranted at this meeting,” the central bank said.

The surprise to markets came as the four-person minority wanted a half-point rate hike. Yields on the 2-year gilt TMBMKGB-02Y, 1.134% rose by nearly 12 basis points, and the pound GBPUSD, +0.04% rose as high as $1.3628 from $1.3567 shortly before the decision.

“Ahead of today’s policy meeting, investors were convinced of a rate hike and the BoE delivered, although the fact that the committee only narrowly avoided a 0.5% increase on a 5-4 vote is more hawkish than we expected. The key question for markets now is how much further the BoE can go in tightening policy,” said Jonathan Sparks, CIO, UK and Channel Islands, Private Banking and Wealth Management at HSBC.

The central bank also said it will stop reinvesting the proceeds of its portfolio of £875 billion in government bonds, but won’t begin selling them until rates have climbed to at least 1%.

The FTSE 100 UKX, -0.21% slipped 0.2%, in line with cautious global sentiment after the weak outlook from Facebook parent Meta Platforms.

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