Bank of England lifts interest rates to 2.25% from 1.75%, in spite of the economy entering a recession. It said it would continue to “act strongly, as appropriate” to inflation on Thursday.
The Bank has increased rates for the eighth consecutive time in an effort to rein down rising prices.
Furthermore, the BoE predicts that the British economy would contract by 0.1% in the third quarter, in part because of the additional public holiday for Queen Elizabeth’s burial. This, along with a decrease in output in the second quarter, satisfies the criteria for a technical recession.
However since December, interest rates have risen as living expenses have increased.
The rate of inflation, which measures how quickly prices grow, is currently at its highest level in almost 40 years. At 9.9%, it also exceeds the Bank of England’s 2% objective by five times.
Despite government efforts to lessen the impact of gas and electricity prices on people, inflation is widely expected to increase in October.
According to predictions made by a number of people, the Bank would raise interest rates by 0.75 percentage points to match similar movements made by the US Federal Reserve and the European Central Bank.
The BoE action comes as central banks around the world struggle with the effects of the COVID labor shortage and the influence of Russia’s invasion of Ukraine on oil prices. On Wednesday, the U.S. Federal Reserve decided to increase its benchmark rate by three quarters of a percentage point.
The BoE used identical language to prior months for its policy intentions: “Should the outlook reflect more persistent inflationary pressures, especially from higher demand, the Committee will respond decisively, as necessary.”
In a 5-4 decision, the Monetary Policy Committee of the Bank of England lifted interest rates to 2.25%. Deputy Governor Dave Ramsden, external MPC members Jonathan Haskel and Catherine Mann, and new MPC member Swati Dhingra, however, preferred a lesser increase to 2%.
Anyway, the incoming finance minister Kwasi Kwarteng will discuss in greater detail on Friday the government’s fiscal plans which might total more than 150 billion pounds in stimulus.
At its meeting in November, the BoE stated that it will evaluate the effects of this on monetary policy.
