The Bank of England (BoE) has raised its interest rates from 2.25 per cent to three per cent – its highest rate hike since 1989.
This is the eighth time in a row that the Central Bank of the United Kingdom has hiked interest rates.
On Thursday the bank’s monetary policy committee (MPC) voted by a majority of seven to two, to increase the base rate of interest by 0.75 percentage points.
The MPC blamed higher energy prices and a tight labour market for the decision to increase rates.
“The MPC’s latest projections describe a very challenging outlook for the U.K. economy,” the bank said in a statement.
“It is expected to be in recession for a prolonged period.”
BoE also forecasted that inflation will hit a 40-year high of 11 per cent in the fourth quarter of 2022.
Speaking at a media briefing following the interest rate hike, Andrew Bailey, BoE Governor, said the move was part of efforts by the bank to tame rising inflation.
“These are big changes, they have a real impact on people’s lives,” Bailey said.
“Quite simply we’re increasing bank rate because inflation is too high and it’s the bank’s job to bring it down.
“People should not have to worry about inflation as they go about their daily business, that’s why we’ve raised inflation as we did today.
“If we do not act forcefully now, things will be worse later on.
“As the forecast shows it is a tough road ahead, with a sharp increase in energy prices caused by Russia’s invasion in Ukraine has made us poorer as a nation.”
The UK is battling with high, double-digit inflation and the economic situation has not improved in recent months.