Bank of England Hikes Rates To 5% In A Surprise Move  

• The Bank of England raised interest rates by a bigger-than-expected half a percentage point on Thursday after it said there had been "significant" news suggesting British inflation would take longer to fall.
• The BoE's Monetary Policy Committee (MPC) voted 7-2 to raise its main interest rate to 5% from 4.5%, its highest since 2008 and its largest rate increase since February, following stickier inflation and wage growth since its policymakers met last in May.
• "There has been significant upside news in recent data that indicates more persistence in the inflation process," the MPC said. "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," it added.
• Expectations for BoE rate tightening have surged in recent days - sharply raising the cost of new mortgages - and before Thursday's decision financial markets expected the BoE's Bank Rate to peak at 6% by the end of the year. By contrast, economists polled by Reuters last week saw a 5% peak.
• The BoE retained its previous guidance on future policy, which stated that if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.
• The central bank also noted that short-dated British government bond yields had risen sharply - pricing in an average level of Bank Rate of 5.5% for the next three years. The BoE said it would keep a close eye on the impact on mortgage costs, as well as rising costs in Britain's rental market.

(Source: Reuters)