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Bank of England raises rates by 50 basis points, in seventh consecutive hike


The Bank of England warned that the UK will enter a recession later this year. The recession is forecast to be the longest since the global financial crisis.

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The Bank of England voted to raise its benchmark interest rate to 2.25% from 1.75% on Thursday, as it seeks to combat inflation that remains five times above target.

Inflation in the UK eased slightly in August but at 9.9% year-on-year still above the bank’s 2% target. Energy and food saw the biggest price increases, but core inflation, which excludes those components, remained at 6.3% on an annualized basis.

The BOE reduced its key rate, known as the Bank Rate, to 0.1% in March 2020 in an effort to boost growth and spending at the start of the coronavirus pandemic. However, when inflation started to pick up at the end of last year, it was one of the first major central banks to start a bullish cycle at their December meeting.

This is the seventh consecutive increase and brings UK interest rates to levels last seen in 2008.

In a statement explaining its decision, the bank noted the volatility in wholesale gas prices but said the government’s announcement of limits on energy bills would limit further increases in inflation to only consumer prices. However, it said there had been further signs since August of “further strengthening of domestic inflation.”

It added: “The labor market is tight and domestic costs and price pressures remain high. While [energy bill subsidy] inflation in the near term, which also means that household spending is likely to be less than forecast in the August Report for the first two years of the forecast period. “

Five members of its Monetary Policy Committee voted for a 0.5 percentage point increase, while three voted for a 0.75 percentage point gain higher that some analysts expected. . One member voted for a 0.25 percentage point increase.

The bank’s decision comes amid growing weakness GBPrecession forecasts, the European energy crisis and the program of new economic policies launched by the new Prime Minister Liz Truss.

Sterling hits multi-decade low vs dollar for this week, traded below $1.14 through Wednesday and fell below $1.13 early Thursday. It has fallen sharply against the greenback this year and was last at this level in 1985.

The pound’s devaluation was caused by a combination of dollar strength – as traders flocked to the investment seen as a safe-haven amid volatile global markets and as the US Federal Reserve hikes its own interest rates – and dire forecasts for the UK economy.

Many analysts, along with the business association British Chamber of Commerce and BOE itself, said it expected the UK to enter a recession before the end of the year. As well as energy price shocks, it faces trade bottlenecks due to Covid-19 and Brexit, weakening consumer sentiment and retail sales fell.

Meanwhile, the country new government established released several key economic policy proposals this month ahead of the “fiscal event,” known as the mini-budget, when they will be officially published on Friday.

This is expected to include reversing a recent National Insurance tax increase, tax cuts for businesses and homebuyers, and a plan for low-tax “investment zones”.

Shoes have many times stress committed to reduce taxes to promote economic growth.

However, the energy crisis also means that the government has announced a huge spending package to limit skyrocketing bills for family and businesses.

Data released on Wednesday showed the UK government borrowed £11.8 billion ($13.3 billion) last month, nearly double forecasts and £6.5 billion over the same period. 2019, due to increased government spending.

The UK is not alone in raising interest rates to fight inflation. European Central Bank rate increase rose 75 basis points earlier this month, while Switzerland’s central bank Long walk by 75 basis points on Thursday morning. US Federal Reserve increase its standard scale range by the same amount on Wednesday.



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