Bank of England hikes interest rates to 2.25%, highest since 2008


Britain’s central bank, the Bank of England, has announced it will raise interest rates to its highest level in more than 13 years, signaling that it believes the economy is already in recession.

The bank’s Monetary Policy Committee (MPC) has raised interest rates to 2.25% from 1.75%, the highest level since November 2008, to contain inflation, which is currently at 9.9%.

The commission said the “tight labor due to wage increases and domestic inflation” above the target called for a “strong response”.

However, the rate hike was less dramatic than the 0.75 percentage point announced by the US Federal Reserve on Wednesday.

Banks also voted unanimously to cut quantitative easing by £80bn ($90bn) to £758bn ($855bn) over the next 12 months.

restraining inflation

The 0.5 percentage point increase was decided after voting by five members of the nine powerful MPC, including Bank of England Governor Andrew Bailey.

Three members, Jonathan Haskell, Katherine Mann and Dave Lumsden, voted in favor of a 0.75 percentage point increase, in line with the decision of the US Federal Reserve Board.

Banks have decided to raise interest rates as energy prices rise next month, despite the government’s significant support to households, according to a board analysis.

But the Institute’s chief economist, Kitty Usher, said it was due to “recent data showing the UK economy to be flat over the summer and early signs that labor force vacancies may have peaked”. said most MPC members chose to hike rates at the lower end of market expectations.

The MPC said at a conference that inflation would not be as high as previously expected after the UK government announced plans to freeze household energy prices earlier this month.

Consumer Price Index (CPI) inflation is currently peaking at “just under 11%,” rather than the 13.3% predicted at the MPC meeting in August.

recession

The central bank had previously forecast that the economy would grow this quarter, but now expects GDP to decline by 0.1%.

This comes after GDP was reported to have fallen by 0.2% in the second quarter, meaning the economy is now in recession.

In response to the Bank of England’s forecast, a government spokesman said: [Russian President Vladimir] Putin’s trespassing into Ukraine and the weaponization of energy pose a global challenge to economies around the world.

“Several temporary factors have also impacted the domestic outlook, but we recognize that action must be taken. We are unashamedly committed to an agenda that drives growth, as detailed in our growth plan.”

PA Media contributed to this report.

Alexander Chan

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