Bank Of England Raises Rates To 2.25%, Despite Likely Recession  

 

• The Bank of England raised its key interest rate to 2.25% from 1.75% on Thursday and said it would continue to "respond forcefully, as necessary" to inflation, despite the economy entering a recession.
• The BoE estimates Britain's economy will shrink 0.1% in the third quarter - partly due to the extra public holiday for Queen Elizabeth's funeral - which, combined with a fall in output in the second quarter, meets the definition of a technical recession.
• Economists polled by Reuters last week had forecast a repeat of August's half-point increase in rates, but financial markets had bet on a three-quarter-point rise, the biggest since 1989, barring a brief, failed attempt in 1992 to support the sterling.
• The BoE move follows the U.S. Federal Reserve's decision on Wednesday to raise its key rate by three-quarters of a percentage point, as central banks worldwide grapple with post-COVID labour shortages and the impact of Russia's invasion of Ukraine on energy prices.
• The BoE now expects inflation to peak at just under 11% in October, below the 13.3% peak it forecast last month before Liz Truss won the Conservative Party leadership and became Britain's prime minister with a promise to cap energy tariffs and cut taxes.

(Source: Reuters)