A walkway near the Bank of England (BOE) in the City of London, UK, on Thursday March 18, 2021.
Hollie Adams | Bloomberg | Getty Images
LONDON — The Bank of England raised interest rates by 25 basis points on Thursday and is revising its economic projections to now rule out the possibility of a recession in the UK this year.
The Monetary Policy Committee voted 7 to 2 in favor of a quarter-point hike to raise the main policy rate from 4.25% to 4.5%, as the Bank reiterated its commitment to contain a stubbornly high inflation.
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The overall consumer price index (CPI) rose 10.1% in March due to still high food and energy bills. Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, rose 5.7% in the 12 months to March, unchanged from February’s annual rise and reiterating the entrenchment risk that concerns the Bank.
The MPC no longer expects the UK economy to go into recession this year, the MPC said in the updated growth and inflation forecasts in its monetary policy report. UK GDP is now expected to be flat in the first half of this year, growing 0.9% to mid-2024 and 0.7% to mid-2025. The country’s latest GDP printout will be released on May 12.
So far, the economy has shown surprising resilience in fending off a widely anticipated recession, with falling energy costs and fiscal stimulus announced in the government’s spring budget improving the outlook.
The MPC now assesses that “the trajectory of demand is likely to be materially stronger than expected in the February report, although still subdued by historical standards.”
“There has been some positive news regarding the near-term outlook for global activity, with UK-weighted global GDP now expected to grow at a moderate pace throughout the forecast horizon,” the MPC said in its May monetary policy report.
“Risks remain but, absent a new shock, there is likely to be only a small impact on GDP from the tightening of credit conditions related to recent developments in the global banking sector.”