The UK’s central bank raised its key interest rate to 1.75%, the highest level since 2008, and warned of a coming recession.
The UK’s central bank has raised interest rates by the biggest in 27 years in a bid to stamp out Inflation soars and warned the country faced a long recession ahead.
Spinning over the rise in energy prices due to Russia’s invasion of Ukraine, the Bank of England’s (BOE) Monetary Policy Committee voted on Thursday to raise the base rate by half a percentage point. version up 1.75%.
This rate is currently at its highest level since the global financial crisis in December 2008.
The BOE predicts inflation will exceed 13% in the final three months of the year – a 42-year high – and remain “very high” for much of 2023.
It also warns that the UK is facing a recession with output falling from peak to trough of 2.1%, similar to the decline in the 1990s but much less than the impact of the pandemic. COVID-19 and the global recession. financial crisis.
According to the bank’s projections, the economy will begin to shrink in the final quarter of 2022 and last through 2023, making it the longest recession since the 2008 recession.
Central banks struggle to combat rising inflation
The BOE has been criticized for moving too slowly to combat inflation, which accelerated to a 40-year high of 9.4% in June and has led to a cost of living crisis. While the central bank approved five consecutive years interest rates increase since December, no number before Thursday has exceeded a quarter of a percentage point.
In contrast, the US Federal Reserve has raised its key interest rate by 3/4 points in each of the past two months to a range of 2.25% to 2.5%. The European Central Bank’s first gain in 11 years was a larger-than-expected half-point gain last month.
Central banks around the world are struggling to control rising inflation without pushing economies into recession. Higher interest rates raise borrowing costs for consumers, businesses and governments, which tend to decrease spending and lower prices up. But such moves are also likely to slow economic growth.
The International Monetary Fund last week cut its outlook for global economic growth, citing higher-than-expected inflation, the continued COVID-19 outbreak in China and further impact from the war in Ukraine.
The IMF said that the UK economy is likely to grow by only 0.5% next year, the slowest growth rate among advanced economies in the world.
UK ‘behind the curve’
Al Jazeera’s Andrew Simmons, reporting from London, said the BOE’s decision to raise rates was “no surprise”.
“It’s also no surprise at the gravity of the situation – the UK has been warned by investors, bankers and traders that it is behind the curve in dealing with the crisis. this crisis with inflation,” Simmons said.
“Perhaps the worrying thing is… the BOE has stated that there will be a recession ahead, for five consecutive quarters – more than a year,” he added.
Simmons said the ominous predictions had “caused shivers” through the City of London, the UK’s financial hub.
“The IMF has forewarned all this that the UK is in one of the worst positions in Europe and looks set to be headed for a recession, now we have deadly confirmation of that and a situation ahead where inflation will be rampant,” he added, citing predictions from some analysts that the inflation rate could rise to as much as 15% by early 2023.
BOE Governor Andrew Bailey told reporters at a news conference that bringing UK inflation back to its 2% target was an absolute priority and said all options were on the table at meetings. future policy meetings.