The Bank of England is the latest central bank to raise interest rates by at least 50 basis points in one go this year as it unleashed its biggest interest-rate hike in 27 years and 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% was backed by eight of the bank’s nine policy makers, 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.
They sheeted much of the inflation to ultra-high energy costs, following on from gas prices which have been driven higher by the Ukraine situation. Inflationary pressures have “intensified significantly,” the BOE said. “The latest rise in gas prices has led to another significant deterioration in the outlook for activity.”
The BOE lifted its forecast for the peak of inflation to 13.3% in October amid that surge in 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% worse off by the end of 2023 with incomes falling both this year and next.
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