UK raises interest rates for the first time in 3 years... BOE Governor: “Additional increases are possible” (comprehensive)

The Bank of England (BOE), the central bank of England, raised its base interest rate by 0.25 percentage points (p) to 4.00% per annum at the Monetary Policy Committee on the 5th (local time).

The UK's base interest rate increase is the first in three years and three months since it was raised by 0.25 percentage points to 5.25% in August 2023.

Eight out of nine members of the monetary policy committee were in favor of raising the interest rate by 0.25%p, and the remaining member expressed the opinion of raising the interest rate by 0.5%p to 4.25%. Market experts surveyed by Reuters previously predicted that the increase would be decided by a vote of 7 to 2, but it appears that a more hawkish view has been revealed.

The base interest rate of 5.25% per annum in August 2023 was the highest in 15 years.

The Bank of England has continued to maintain or reduce interest rates since then. The last cut was 0.25% point in December last year, and this year it was frozen six times in a row from January to September.

Since the Iran war began in February of this year, rising price pressures have continued. The consumer price index increase rate in September was 3.5%, significantly exceeding the bank's target of 2% and reaching the highest level in 11 months.

In a statement, the Bank of England pointed to the continued rise in global energy prices due to the conflict in the Middle East, which has entered its ninth month, and pointed out that the UK Consumer Price Index (CPI) growth rate is expected to rise to close to 5% by the middle of next year.

“The direct impact of rising energy prices is clear and will continue to be reflected in the energy costs of businesses and households, but signs of knock-on effects on other prices and wages remain limited,” the Bank of England explained.

Governor Andrew Bailey also said, "Today's hike is inevitable and should not be seen as the beginning of a series of hikes," but added, "But it also does not appear to be the last unless the Middle East war is resolved."

Governor Bailey also said, “If there is no news that alleviates the risk of inflationary pressures, it makes sense to raise interest rates further and then take a conditional approach based on energy prices and evidence of price dynamics.”

According to the economic outlook presented by the Bank of England on this day, the CPI growth rate in the second quarter of next year is expected to peak at 4.9%, the highest level since September 2023, and fall below 2% only in 2029. The rate was expected to be 4.5% in the first quarter of next year, which is more than 1 percentage point higher than the forecast in July of this year (3.2%).

Since the outbreak of the Middle East war, the Bank of England has presented different economic scenarios depending on the conflict situation, and in the worst-case scenario where tensions continue to rise, the inflation rate in the third quarter of next year is expected to reach 6.2%.

The Bank of England expects the UK's gross domestic product (GDP) this year to increase by 1.6% compared to last year, revising its previous forecast upward by 1.1%. The economic growth rate forecast for next year was also raised from 1.1% to 1.3%. However, the growth rate for 2028 was lowered from 1.7% to 1.2%.

The Bank of England's interest rate hike today was later than that of other major developed countries.

Previously, the European Central Bank (ECB) raised the three major policy interest rates by 0.25%p twice in June and September and froze them last month. The U.S. Federal Reserve also froze its base interest rate at 3.75-4.00% per year at the end of last month after raising it in September.