Bank Of England Warns Rates To Stay High As Borrowing Costs Hit 15-Year Peak

• The Bank of England raised its key interest rate by a quarter of a percentage point to a 15-year peak of 5.25% on Thursday, its 14th back-to-back increase, and warned that borrowing costs were likely to stay high for some time.
• While the U.S. Federal Reserve and the European Central Bank signalled that their rate hikes were nearing an end when they both raised borrowing costs by a quarter-point last week, the BoE's Monetary Policy Committee (MPC) gave no such suggestion it was about to pause as it continues to battle high inflation.
• "The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target," the BoE said in fresh guidance.
• Governor Andrew Bailey stressed that message, even as the BoE saw the economy growing only minimally in the coming years.
• "I don't think it is time to declare it's all over," he told a press conference, adding it was "far too soon" to speculate about the timing of any rate cuts. Bailey also said "we might need to raise interest rates again but that's not certain".
• British inflation hit a 41-year high of 11.1% last October and has fallen more slowly than elsewhere, standing at 7.9% in June, the highest of any major economy.
• Deputy Governor Ben Broadbent said keeping relatively high rates over an extended period was key for cutting inflation.
• Despite the BoE's message, financial markets - which had seen a more than one in three chance of a half-point rate rise to 5.5% - focused on how the BoE had for the first time described its policy stance as "restrictive".
• Investors moved to price in slightly less BoE tightening, with rates seen peaking at 5.75% and two-year bond yields down, although investors still saw a two-in-three chance that rates would rise to 5.5% next month. Sterling was little changed on the day.

(Source: Reuters)