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BoE Hikes Key Rate by 0.5% to 4%, Signals Possible Peak Mid-Year"

The Bank of England raised its key interest rate by 50 basis points to 4% on Thursday, warning that its battle against inflation is ongoing. However, the bank held out the possibility of ending its policy tightening by mid-year.

The move was expected by financial markets, but it threatens to sharpen an already clear economic downturn.

The Bank was forced to raise interest rates due to inflation running higher than in the US or Europe and the labor market remaining tight. Despite the Bank's calculations suggesting a peak in rates around 4.5% in mid-2023, uncertainties remain high and inflation risks are skewed to the upside. The Monetary Policy Committee was not unanimous in its decision, with two members voting for no change in the Bank rate. The Bank's guidance caused strong reactions in U.K. markets, with the pound down 0.7% and the yield on the 10-year Gilt at its lowest in two months. Meanwhile, the U.K.-focused FTSE 250 stock index rose 1.9% to its highest level since last August.

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