The Bank of England kept pace with the U.S. Federal Reserve on Thursday with a 25-basis-point rate increase, against a backdrop of rising U.K. inflation and volatility in global financial markets.
The BOE's monetary policy committee, which sets policy to meet the central bank's 2% inflation target, was split on the decision to raise the bank rate to 4.25%. Seven members of the committee voted to raise rates, while two wanted to keep rates at 4%.
The BOE said in a news release announcing the increase that global growth is expected to be stronger than previously anticipated, but core consumer price inflation in developed markets remains elevated. U.K. inflation rose unexpectedly to 10.4% in February, up from 9.9% in January, the bank said.
The BOE also referenced "large and volatile moves in global financial markets, in particular since the failure of Silicon Valley Bank and in the run-up to UBS's purchase of Credit Suisse, and reflecting market concerns about the possible broader impact of these events." It said the bank's financial policy committee judges the U.K. banking system to be "well-placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The FPC's assessment is that the U.K. banking system remains resilient," the news release said.
Money managers said the increase was in line with expectations.
Vivek Paul, U.K. chief investment strategist at the BlackRock Investment Institute, said in emailed commentary that the increase, which follows the 25-basis-point hike by the Fed and 50-basis-point rise by the European Central Bank last week, "shows why we're in a new regime; central banks will not ride to the rescue with rate cuts at the first sign of growth concerns, as we've been used to for a generation."