LONDON – The Bank of England (BoE) delivered today its biggest interest rate hike since 1989 to combat soaring inflation and warned that Britain faced a recession set to last until mid-2024.
Following a regular meeting, the BoE said it was lifting borrowing costs by 0.75 percentage points to 3% – the highest level since the 2008 global financial crisis – with the United Kingdom’s inflation at a four-decade high above 10%.
The latest rate hike mirrors aggressive rate-tightening by central banks worldwide as economies battle the highest prices in decades.
Yesterday, 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% 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 yesterday.
British annual inflation stands at 10.1%, 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% and also pumped massive sums of new cash into the economy.
Britain’s central bank started raising rates last December and today’s hike was the eighth increase in a row. – AFP, November 3, 2022
