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  2. ECONOMY
August 02, 2018 01:00 AM

Bank of England raises U.K. interest rates

Sophie Baker
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    Bloomberg
    A statue of the Duke of Wellington on horseback stands in front of the Bank of England in London. The bank's monetary policy committee voted unanimously to raise interest rates.

    The Bank of England’s monetary policy committee voted unanimously to raise U.K. interest rates by 25 basis points to 0.75%.

    The decision was announced by the central bank Thursday following the MPC’s meeting on Wednesday.

    The MPC, which sets monetary policy to meet a 2% inflation target, also voted to keep its asset purchase program unchanged.

    The bank’s announcement said the near-term outlook has “evolved broadly in line with the MPC’s expectations” since its May inflation report. A dip in output in the first quarter of the year was temporary and momentum recovered in the three months ended June 30. Further, the labor market has continued to tighten, the announcement said.

    “Any future increases in bank rate are likely to be at a gradual pace and to a limited extent,” it said.

    Money managers said the move came as no surprise, but warned that further hikes should not be anticipated anytime soon.

    “The economy has done just about enough for the Bank of England to justify a hike today,” said Luke Bartholomew, investment strategist at Aberdeen Standard Investments, in a reaction comment. “But no one should get too excited about this being a sign of things to come. It is almost unthinkable that the Bank of England will follow up with further rate rises in the next few months given the risks on the horizon. The most ominous of these risks is Brexit.”

    Mr. Bartholomew said the bank is basing assumptions on the U.K. having a smooth transition when it exits the European Union, “and that’s a pretty big assumption at the moment. The other big uncertainty is the U.K.’s chronically weak productivity, which will ultimately determine how fast the economy can grow without stoking inflation,” he said.

    Neil Williams, senior economic adviser at Hermes Investment Management, said in a separate comment that the bank’s tone reflects caution and warned that its “window to hike may become smaller in 2019 and (it may) even close by 2020.”

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