The Bank of England increased interest rates on Thursday (Feb 2), in the midst of a recession, for the 10th time in a row, to the highest level since the 2008 financial crisis, with a warning that more hikes may be necessary to combat inflation. Rates were hiked by 50 basis points to four per cent, the highest level in over 15 years, by the nine-member committee of rate-setters involved in deciding the UK’s basic level of borrowing costs. Governor Andrew Bailey was one of the 7-2 yes votes. In spite of the bank’s forecast that Britain would remain in a recession for the entirety of this year and most of next, more hardship has been inflicted on individuals and businesses.
Additionally, European Central Bank (ECB) has once again hikes interest rates by 50 basis points.
The latest economic projections from the central bank were raised from its November forecasts, which called for the sharpest contraction since the early 1990s. However, after 15 months in a row, the length of the reversal is more or less the same.
GDP is projected to contract by 0.5 per cent in 2023 and 0.25 in 2024, which is a little more gloomy than predictions made earlier this week by the International Monetary Fund (IMF), which stated that the UK would be the only wealthy economy to experience a contraction this year but growth the following year.
The economy is projected to shrink by one per cent by the end of the recession, and by 2026 it may still be less than it was before the Covid pandemic.
Also watch | US: Fed approves 0.25% rate increase, Powell suggests ‘couple’ more hikes coming
The Bank still believes “further tightening in monetary policy” would be necessary if “more persistent” inflationary pressures persist despite the protracted recession.
Rishi Sunak marks 100 days in office
As the first non-white British Prime Minister, Rishi Sunak celebrated his 100th day in office on Thursday (Feb 2) with a new social media video in which he vowed to bring about change despite several obstacles, such as spiralling inflation.
Following the abrupt resignations of his predecessors, party-gate-hit Boris Johnson and the nation’s shortest-serving prime minister Liz Truss, the UK’s first Prime Minister of Indian descent had entered office at 10 Downing Street on October 25, a day after Diwali (the Indian festival of lights).
(With inputs from agencies)