Bank of England makes surprise rate rise move

Bank of England makes surprise rate rise move

Thursday, January 11, 2007

In an unexpected move today The Bank of England announced it had raised interest rates to 5.25% following this month’s meeting of the Monetary Policy Committee.

The move brought interest rates to their highest point for five and a half years and surprised analysts who had recently voted 49 to 1 for a rate freeze this month.

Sterling has risen and oil prices have fallen back, said the Bank, but the margin of spare capacity in the economy appears limited, adding to domestic pricing pressures. CPI inflation was 2.7% in November. It is likely that inflation will rise further above the target in the near term, but then fall back as energy and import price inflation abate. Relative to the November Inflation Report, the risks to inflation now appear more to the upside.

Against that background, the Committee judged that an increase in Bank Rate of 0.25 percentage points to 5.25% was necessary to bring CPI inflation back to the target in the medium term.

Analysts had expected the rise to come next month based upon historical evidence from previous moves when the Bank had waited for the quarterly inflation report. The next, due in February, would have enabled the Bank top back up its decision with detailed projections of prices and growth.

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