Bank of England chooses to surprise, hikes by 50bp

"The [Monetary Policy Committee’s] remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework," Bank said.

"The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term."

In their monetary policy statement, rate-setters noted how at the time of the last meeting the market-implied path for Bank Rate was just over 4% for the next three years.

Now it was averaging about 5.5%, mortgage rates had risen "notably" and Sterling had strengthened.

They also noted how regular Average Weekly earnings had surprised by half a percentage point versus the May Inflation Report, rising by 7.6% over the three months to April.

However, AWE growth was expected to ease, they said, pointing to survey results.

Inflationary pressures had also surprised to the upside.

Yet CPI inflation was expected to "fall significantly" over the remainder of 2023, they added.

"The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit."

For Samuel Tombs, chief UK economist at Pantheon Macroeconomics, the MPC made no attempt to rein in market pricing for rates.

Yet Tombs went on to say: "We still retain faith in the wide range of leading indicators which suggest that labour market slack will emerge and consumer price and wage rises will slow over the coming months.

"As a result, we still disagree with markets’ decision to price-in a 6.00% peak for Bank Rate. But with the Committee showing little hesitation today to opt for a 50bp hike, and services CPI inflation likely to take a while to roll over, we now expect Bank Rate to peak at 5.50%, with 25bp hikes in August and September."

-- More to follow --