Bank of England hikes interest rates to 0.25%

The Bank of England’s Monetary Policy Committee (MPC) took the decision at its meeting yesterday and announced the move today.

The bank confirmed that the committee had agreed unanimously that the Bank Rate should be increased by 0.15 percentage points, to 0.25%.

The MPC said the move was one of a range of measures being taken to attempt to meet its 2% inflation target 'in a way that helps to sustain growth and employment'.

"In the United Kingdom, market-implied expectations for the path of Bank Rate had fallen sharply immediately following the MPC’s November meeting. Market contacts were expecting Bank Rate to rise in the coming months.

"In the days running up to the MPC’s December meeting, most contacts had expected Bank Rate to remain at 0.1% at this meeting. Following the UK Consumer Price Index (CPI) release on December 15, however, market pricing had become more finely balanced between Bank Rate remaining at 0.1% and an increase of 15 basis points at this meeting.

"Further out, the market-implied path for Bank Rate reached 1.1% by the end of 2022. Volatility in UK short-term interest rate markets had remained elevated since the Committee’s previous meeting, in part reflecting diminished market liquidity, some of which was expected to persist over the year-end period," a statement explains.

The British central bank also agreed to maintain the amount of quantitative easing at £895bn.

"The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £875 billion, and so the total target stock of asset purchases at £895 billion," the statement adds.