Bank of England Raises Rates By Most Since 1995 Even As Long Recession Looms

  • The Bank of England raised interest rates by the most in 27 years on Thursday, August 4th, 2022, 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%.
  • The BoE had previously expected inflation to peak at above 11% and almost no growth in Britain's economy before 2025 at the earliest. In its new forecasts, the BoE saw inflation falling back to 2% in two years as the hit to the economy took its toll on demand.
  • However, 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 pound slid after the move, which was accompanied by a warning that a UK recession will begin in the fourth quarter and last through next year.
  • 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.

(Source: Reuters)