Interactive Investor

Bank of England hikes interest rates and issues new warning on inflation

11th May 2023 13:02

by Victoria Scholar from interactive investor

Share on

Another rise in UK interest rates today was widely expected, but Bank of England policymakers have had to tweak their inflation forecast. Our head of investment has the details.

Recession montage with Bank of England and market charts 600

The Bank of England voted 7-2 to raise interest rates by 25 basis points to 4.5% as widely anticipated, marking the twelfth consecutive rate increase, lifting the bank rate to the highest level since 2008. Two dissenters Dhingra and Tenreyro voted to keep rates on hold.

Governor Andrew Bailey said ‘inflation remains too high’ and ‘we have to stay the course’ underscoring his reasoning behind today’s hike. He added that inflation is on course to halve by the end of this year. 

Financial markets anticipate further tightening from the Bank of England, with traders estimating that the Bank rate will hit around 4.88% in November, rising from 4.83% prior to the decision.


The central bank is no longer forecasting a UK recession, having upgraded its GDP forecasts. It expected economic growth of 0.25% in 2023 versus its February forecast for a contraction of 0.5%. It estimates unemployment to hit 3.8% in the fourth quarter, an improvement from its prior forecast for 4.3%. 

However, it expects inflation to fall to 5.12% by the fourth quarter, higher than its previous estimate for 3.92% and wage growth is seen hitting 5% in the fourth quarter versus its February estimate for 4%. The Bank of England said food inflation is more persistent than forecast, but Bailey commented ‘we do see signs that food price inflation will start to slow.’ 


Sterling rebounded off the day’s lows following the Bank of England’s rate hike, but it remains in negative territory in today’s session against the US dollar. 

The pound had been rallying close to a one-year high this week in anticipation of the central bank’s rate decision and thanks to improved inflation data in the United States, which catalysed weakness for the greenback on Wednesday. Cable (GPBUSD)’s gains turned red this morning, although the MPC’s rate hike tempered those declines. 

The FTSE 100 turned negative after the announcement, partly driven by sterling, which has been pared back earlier declines. The UK large-cap index has also been weighed down by a number of companies such as Tesco (LSE:TSCO), BP (LSE:BP.) and HSBC Holdings (LSE:HSBA) which have gone ex-dividend today.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox