"Inflation remains too high," even if it is expected to start "falling fairly quickly, as early as the April data," BoE Governor Andrew Bailey said at a press conference after announcing an increase in the BoE's main interest rate by 0.25 percentage points to 4.5%.

Unsurprisingly, the BoE followed the lead of the U.S. Federal Reserve and the European Central Bank, which opted for similar hikes the previous week.

Major central banks are trying to counter inflation, which persists well beyond their 2% target without stifling economies that are beginning to falter.

The UK is the only G7 country where it still exceeds 10%, despite the longest streak of consecutive hikes in the central bank's history.

The promise will be kept

The Bank anticipates a visible decline from the April figures.

In the United Kingdom, gas and electricity prices had soared in April 2022, a few months after the start of the war in Ukraine, causing a rise in inflation that will disappear from the annual comparison.

Inflation in the UK © / AFP/Archives

In addition, "rate hikes since December 2021 should have a more pronounced effect in the coming quarters," says the BoE.

About 1.3 million households that have borrowed to buy will see the rates of these loans revised upwards by the end of the year, estimates for example the BoE in its monetary policy report.

BoE economists believe the government's promise to halve inflation by the end of the year will be kept. But they raised their projections for these indicators, in part because of higher-than-expected food prices.

According to them, inflation should end at 5% in 2023, before falling to 2.25% in 2024 and then to 1% in 2025.

Some analysts believe that the BoE will still have to raise its rates to make it bend: for those of Goldman Sachs, they will rise up to 5%.

Timid growth

For now, the British economy is holding up better than projected by the central bank, which had gone so far as to predict a recession lasting a record five quarters.

The BoE now judges that the UK will not only avoid recession, but that its economy will not contract in any quarter in 2023 or 2024.

Ben Broadbent, deputy governor of the BoE, at a press conference on May 11, 2023 in London © HENRY NICHOLLS / POOL / AFP

A revision that still leaves growth at a historically low level, but whose magnitude calls into question the reliability of the institution's forecasts.

Faced with the successive shocks of Brexit, then the Covid-19 pandemic and finally the Russian invasion of Ukraine, "if conditions change, projections change," defended Ben Broadbent, deputy governor of the BoE at the same conference.

According to the Bank's updated forecasts, UK GDP is expected to grow by 0.25% in 2023 and 0.75% in 2024.

Concerns, focused on the United Kingdom at the end of 2022 with the soaring British debt rate during the disastrous episode of the "mini-budget" of the ephemeral Prime Minister Liz Truss, have crossed the Atlantic again.

The BoE believes that the tumult on the banking sector since the collapse of Silicon Valley Bank will have a "moderate" effect on the British economy, smaller than the quarter point of growth it should cost US GDP.

Bank of England officials at a press conference on May 11, 2023 in London © HENRY NICHOLLS / POOL / AFP

Around 12:30 GMT (14:30 in Paris), the pound, which had reached a high for more than a year at the beginning of the week against the dollar, was slightly lower.

For Anna Leach, economist at the employers' organization CBI, the future direction of rates remains "uncertain", between episodes of banking turbulence in the United States and risks of financial stability, or the possibility that inflation and wages in particular remain high.

"Rates may have peaked, but the risks of one or two more hikes remain significant," said Paul Dales of Capital Economics.

© 2023 AFP