UK increased Bank Rate by 0.25% to 1%

A majority MPC voted to rise 0.25% while the minority preferred to increase by 0.5%  

UK Monetary Policy Summary (MPC), sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 4 May 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 1.25%. 

Since the MPC’s previous meeting, advanced-economy government bond yields had risen significantly and by more in the United States and in the euro area than in the United Kingdom. Ten-year yields had increased by around 80 basis points in the United States, 65 basis points in the euro area and 35 basis points in the United Kingdom (UK). 

The near-term path for market-implied policy rates in the United States had risen significantly since the MPC’s previous meeting. At its March meeting, the Federal Open Market Committee had increased the target range for the federal funds rate to 0.25-0.50% and had given an indication that the Committee was well placed to begin the process of reducing the size of the Federal Reserve’s balance sheet as early as May and at a quicker pace than during the 2017-19 episode of balance sheet reduction. 

The market-implied policy rate in the United States reached 2.8% by end-2022 and peaked at around 3.4% in 2023. In the euro area, the near-term market-implied path for policy rates had also risen since the MPC’s previous meeting.

At its meeting on 14 April, the ECB Governing Council had left its key policy interest rates unchanged and had noted that recent data had reinforced its expectation that net asset purchases should be concluded in the third quarter of 2022. 

In the United Kingdom, market pricing was consistent with an increase in Bank Rate of 0.25 percentage points, to 1% at this MPC meeting, and market-implied expectations for the path of Bank Rate had risen further out. 

The May Monetary Policy Report was conditioned on a market-implied path for Bank Rate, based on the 15-working day average to 26 April, that rose to around 2% by end-2022, peaked at 2.6% in 2023 and then fell back to around 2% in three years’ time. 

The results of the Bank of England’s Market Participants Survey had indicated broadly similar expectations for Bank Rate in the near term, with almost all respondents expecting a 0.25 percentage point increase at this meeting. 

Respondents expected a much lower central path for Bank Rate than the market-implied path further ahead, albeit a significant number of respondents viewed the balance of risks around that path as being skewed to the upside rather than to the downside over the next two years, reconciling at least in part the difference with market-implied expectations.