The Bank of England raised interest rates by the most in 27 years on Thursday, despite warning that a long recession is on its way, as it rushed to smother a rise in inflation which is now set to top 13%.
Reeling from a surge in energy prices caused by Russia's invasion of Ukraine, the BoE's Monetary Policy Committee voted 8-1 for a half percentage point rise in Bank Rate to 1.75% – its highest level since late 2008 – from 1.25%.
The BoE warned that Britain was facing a recession with a peak-to-trough fall in output of 2.1%, similar to a slump in the 1990s but far less than the hit from COVID-19 and the downturn caused by the 2008-09 global financial crisis.
British consumer price inflation hit a 40-year high of 9.4% in June, already more than four times the BoE's 2% target, triggering industrial action and putting pressure on whoever succeeds Boris Johnson as Britain's next prime minister to come up with further support.
The pressure on Governor Andrew Bailey and colleagues to move in larger steps intensified after recent big rate hikes by the U.S. Federal Reserve, the European Central Bank and other central banks.
Those moves weakened the value of the pound, which can add to inflation.
But it stressed that there were “extremely large” uncertainties about the economy – which could make the slowdown more or less severe than its core forecasts – and it would judge what its next moves should be as events unfold.
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