Bank of England (BoE) raised interest rates on Thursday (November 3), the most since 1989, to counteract the sky-high inflation. According to BoE, inflation is driving Britain into a recession that will endure until mid-2024.
The BoE announced after a meeting that it was raising borrowing costs by 0.75 percentage points to three per cent, the highest level since the global financial crisis of 2008. The decision to an interest rate hike is taken to curb UK inflation, which it predicts will soon reach a four-decade high of close to 11 per cent.
BoE governor Andrew Bailey told a press conference: “It is a tough road ahead. The sharp increase in energy prices caused by Russia’s invasion of Ukraine has made us poorer as a nation. The level of economic activity is likely to be flat and even fall for some time.”
With rising food and energy prices, the most recent rate increase is a reflection of aggressive rate tightening by central banks around the world. The US Federal Reserve abruptly raised interest rates by 0.75 percentage points on Wednesday, and its chairman, Jerome Powell, hinted that rates will rise more than anticipated.
WATCH | US Fed hikes interest rates by 0.75%
The BoE predicted that British inflation would reach a top of 10.9 percent this year, but because the rate is so high, analysts believe it may reach as high as five percent in the near future.
Millions of Britons are expected to experience a worsening cost-of-living problem as a result of the BoE rate increase, as increases by central banks cause retail lenders to raise interest rates on their own loans.
Bailey also agreed to it as he said that these are “big changes” and they have a real impact on people’s lives. He said they are increasing bank rate at the time when so many people are already struggling with higher energy and food prices and other bills, because inflation is too high and it is the bank’s job to “bring it down”.
Meanwhile, Craig Erlam, an analyst at trading platform OANDA, said: “The central bank has had the unenviable job of fighting soaring inflation amid enormous economic and political uncertainty.”
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