by David Milliken and Andy Bruce

LONDON (Reuters) – The Bank of England (BoE) on Thursday announced a quarter-point hike in its key interest rate, its twelfth consecutive rise, as it tries to tame the highest inflation of the G7 countries.

This increase, which brings the British key rate to 4.5%, was voted by seven votes against two, Silvana Tenreyro and Swati Dhingra, members of the Monetary Policy Committee (MPC), having again expressed their opposition to a further increase. .

The BoE, which raised its growth forecasts compared to those of February, no longer expects a recession in the British economy.

It now expects GDP to grow by 0.25% this year, compared to a contraction of 0.5% previously, while anticipating a slower slowdown in inflation, mainly due to the unexpected and sustained increase in food prices. .

“If there were to be evidence of more persistent pressures, then further monetary policy tightening would be required,” the BoE said in a statement, repeating the same guidance as in February and March.

In December 2021, the BoE was the first of the world’s major central banks to engage in a rate hike cycle, in the face of a deterioration in the economic situation which combines high inflation and slowing growth.

But some have deemed this tightening too slow to curb inflation, which ended up reaching 11.1% last October, a four-decade high.

Britain’s inflation problem stems largely from the country’s heavy reliance on imported natural gas for power generation, making it particularly vulnerable to soaring energy prices after the invasion of the Ukraine by Russia.

With energy prices having fallen sharply, the central bank expects inflation, currently at 10.1%, to fall to 5.1% by the end of the year. But this slowdown is less significant than expected in February, when the BoE was anticipating inflation at 3.9%.

The central bank now estimates that the increase in food prices will be more pronounced and raise the inflation forecast by one percentage point.

Most of its officials consider that there are “significant” risks of an upward revision of these inflation projections.

The BoE, which does not see inflation returning to its 2% target before the start of 2025, further fears that the recent wage increase could become a more long-lasting problem for the economy.

On the financial markets, the yield on British ten-year government bonds reduced its decline a few minutes after the BoE’s announcements at 3.795%, while the pound sterling fell by 0.17% against the dollar at 1.2603, against 0.4% previously.

On the London Stock Exchange, the FTSE 100 index was heading down (-0.23%).

Both the US Federal Reserve and the European Central Bank raised rates by 25 basis points last week. While Fed Chairman Jerome Powell hinted at a pause, ECB boss Christine Lagarde said it was too early to halt the current cycle.

(With Suban Abdulla, Laetitia Volga, edited by Nicolas Delame and Blandine Hénault)

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