New Delhi: The Bank of England on Thursday raised interest rates by the highest in 27 years, and warned of a long recession loomed over the country as inflation is set to spill over 13 per cent.
The British central bank has now raised rates six times since December but Thursday’s move was the biggest since 1995.
The monetary policy committee voted 8-1 to raise bank rate by a half percentage point rise to 1.75, its highest level since 1.25 per cent since 2008.
NEW: 🚨
*Bank of England raises interest rates by 0.5% to 1.75%, biggest rise in 25 years,
*as it predicts an even higher peak in inflation of 13 (THIRTEEN) %
🚨 Bank predicts recession starting this year lasting as long as financial crisis (5 quarters), as deep as 1990s
— Faisal Islam (@faisalislam) August 4, 2022
The country is feeling the pinch of surging energy prices as a result of the Russia-Ukraine war, Reuters reported.
The report said the 50-basis point rise was expected by economists, as most banks around the world are rushing to smother the increase in prices.
The report added: “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.”
Britain’s economy will shrink in the final quarter of 2022 and continue to decline throughout 2023, the report said. Households would face two consecutive years of decline in disposable incomes, “the biggest squeeze since these records began in 1964”.
England’s consumer inflation hit a 40-year high of 9.4 per cent in June, more than four times the Bank of England’s two per cent target. Russian President Vladimir Putin’s weaponisation of gas supplies will drive inflation even higher, some feared.
UK Chancellor Nadhim Zahawi agrees that the Bank’s forecasts are worrying, but commended the value of a “strong, independent monetary policy”.
He said: “Along with many other countries the UK is facing global economic challenges and I know that these forecasts will be concerning for many people.
“Addressing the cost of living is a top priority and we have been taking action to support people through these tough times with our £37bn package of help for households, which includes direct payments of £1,200 to the most vulnerable families and a £400 discount on energy bills for everyone.
“We are also taking important steps to get inflation under control through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost our productivity and growth.
“The economy recovered strongly from the pandemic, with the fastest growth in the G7 last year, and I’m confident that the action we are taking means we can also overcome these global challenges.”
Shadow Chancellor of the Exchequer Rachel Reeves said the rate hike was “further proof that the Conservatives have lost control of the economy, with skyrocketing inflation set to continue, while mortgage and borrowing rates continue to rise”.
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