The Bank of England is scrambling to tame galloping inflation
The Bank of England delivered Thursday its biggest interest rate hike since 1989 to combat soaring inflation and warned that Britain faced a recession set to last until mid-2024.
Britain’s economy has entered a recession set to last until mid-2024, the Bank of England said Thursday as it hiked its key interest rate by the biggest amount since 1989.
Following a regular meeting, the BoE said it was lifting borrowing costs by 0.75 percentage points to three percent — the highest level since the 2008 global financial crisis — with UK inflation at a four-decade high above 10 percent.
The latest rate hike mirrors aggressive rate-tightening by central banks worldwide as economies battle the highest prices in decades.
On Wednesday, the US Federal Reserve sprang a fourth consecutive hike of 0.75 percentage points — and its boss Jerome Powell suggested they would go higher than expected.
The BoE said British inflation would peak at 10.9 percent this year.
Minutes of its meeting said the economy was “likely to be entering recession”.
They added: “Importantly, most of the tightening in policy over the past year was yet to feed through to the real economy.”
– Cost-of-living crisis –
The BoE rate increase is set to worsen a cost-of-living crisis for millions of Britons as hikes by central banks see retail lenders push up interest rates on their own loans.
“The central bank has had the unenviable job of fighting soaring inflation amid enormous economic and political uncertainty,” said Craig Erlam, analyst at trading platform OANDA.
Repayments on UK mortgages have surged in recent weeks also after the debt-fuelled budget of previous British prime minister Liz Truss spooked markets, forcing her to resign and triggering emergency buying of UK government bonds by the BoE.
Her successor Rishi Sunak has attempted to bring calm to markets by hinting at tax rises in a fresh budget on November 17, even if such a move further harms Britain’s economy.
“I think everyone knows we do face a challenging economic outlook and difficult decisions will need to be made,” Sunak, a former UK finance minister, told parliament on Wednesday.
British annual inflation stands at 10.1 percent, the highest level in 40 years, on soaring food prices and energy bills.
As the Covid-19 pandemic began in early 2020, the BoE slashed its key interest rate to a record-low 0.1 percent and also pumped massive sums of new cash into the economy.
The Bank of England started raising rates last December and Thursday’s hike was the eighth increase in a row.
