Bank of England unleashes biggest rate hike since 1995, warns of long recession
- Increase to 1.75 per cent backed by eight of the bank’s nine policymakers, who pledged to act forcefully in future if needed – potential similar hikes
- Officials predict UK recession will begin in the fourth quarter, and last through next year – economy expected to shrink by about 2.1 per cent in total
The Bank of England unleashed its biggest interest-rate hike in 27 years as it warned the UK is heading for more than a year of recession under the weight of soaring inflation.
The half-point increase to 1.75 per cent was backed by eight of the bank’s nine policymakers, who also kept up a pledge to act forcefully again in the future if needed, potentially putting similar hikes on the table for coming meetings.
The move came as officials predicted a UK recession will begin in the fourth quarter, and last all the way through next year. That’s the longest slump since the financial crisis. Officials expect the economy to shrink by around 2.1 per cent in total.
The BOE also boosted its forecast for the peak of inflation to 13.3 per cent in October amid a surge gas prices, and warned that price gains will remain elevated throughout 2023. That will sharpen a cost of living crisis that will see real disposable incomes fall more than at any time in around 60 years.
Even after billions of pounds of government support for struggling households, families are set to be around 5 per cent worse off by the end of 2023 with incomes falling both this year and next.
Set against the gloomy outlook, the half-point hike, unprecedented since the BOE gained independence in 1997, is a sign officials are calling time on the era of cheap money and scrambling to keep pace with a wave of global tightening from its international peers.