Bank of England hikes by 50 basis points, says UK may already be in recession
Last edited Thu Sep 22, 2022, 12:19 PM - Edit history (1)
Source: CNBC
LONDON — The Bank of England voted to raise its base rate to 2.25% from 1.75% on Thursday, lower than the 0.75 percentage point increase that had been expected by many traders. Inflation in the U.K. dipped slightly in August but at 9.9% year-on-year remained well above the bank’s 2% target. Energy and food have seen the biggest price rises, but core inflation, which strips out those components, is still at 6.3% on an annual basis.
The BOE now expects inflation to peak at just under 11% in October, down from a previous forecast of 13%. The smaller-than-expected hike came as the bank said it believed the U.K. economy was already in a recession, as it forecast GDP would contract by 0.1% in the third quarter, down from a previous forecast of 0.4% growth. It would follow a 0.1% decline in the second quarter.
Numerous analysts, along with business association the British Chambers of Commerce, have previously said they expect the U.K. to enter a recession before the end of the year. As well as energy price shocks, it faces trade bottlenecks due to Covid-19 and Brexit, declining consumer sentiment, and falling retail sales.
The BOE dropped its key rate, known as the bank rate, down to 0.1% in March 2020 in an attempt to prop up growth and spending at the onset of the coronavirus pandemic. However, as inflation began to rise sharply late last year, it was among the first major central banks to kick off a hiking cycle at its December meeting.
Read more: https://www.cnbc.com/2022/09/22/bank-of-england-raises-rates-by-50-basis-points-in-seventh-consecutive-hike.html
Article and headline updated.
Original article/headline -
The Bank of England voted to raise its base rate to 2.25% from 1.75% Thursday, as it seeks to combat inflation that remains five times higher than its target. Inflation in the U.K. dipped slightly in August but at 9.9% year-on-year remained well above the bank’s 2% aim. Energy and food have seen the biggest price rises, but core inflation, which strips out those components, is still at 6.3% on an annual basis.
The BOE dropped its key rate, known as the Bank Rate, down to 0.1% in March 2020 in an attempt to prop up growth and spending at the onset of the coronavirus pandemic. However, as inflation began to rise sharply late last year, it was among the first major central banks to kick off a hiking cycle at its December meeting.
This is its seventh consecutive rise and takes U.K. interest rates to a level last seen in 2008. Five members of its Monetary Policy Committee voted for the 0.5 percentage point rise, while three voted for a higher 0.75 percentage point rise that had been expected by some analysts. One member voted for a 0.25 percentage point rise.
The bank’s decision comes against a backdrop of an increasingly weak British pound, recession forecasts, the European energy crisis and a program of new economic policies set to be introduced by new Prime Minister Liz Truss.
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