Bank of England raises bank rate by 0.5 pp to 5%

Monetary policy will ensure that the consumer price index-based (CPI) inflation sustainably returns to the 2 per cent target in the medium term, the bank noted in a press release.

CPI inflation is expected to fall significantly further during the course of the year, it said.

Core goods CPI inflation is expected to decline later this year, supported by developments in cost and price indicators earlier in the supply chain.

In particular, annual producer output price inflation has fallen very sharply in recent months.

Twelve-month CPI inflation fell from 10.1 per cent in March this year to 8.7 per cent in April and remained at that rate in May. This is 0.3 percentage points higher than expected in the May report.

The committee recognises that the second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge.

There has been significant upside news in recent data that indicates more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand, the bank added.

Business surveys continue to suggest underlying quarterly gross domestic product (GDP) growth of around 0.25 per cent during the middle of this year.

The unemployment rate has been flat at 3.8 per cent, in line with the May report.

ALCHEMPro News Desk (DS)