Bank of England increased its primary interest rate by half a percentage point; largest increase since 1995

August 5, 2022

The Bank of England forecast the UK’s longest recession since the global financial crisis on Thursday and raised interest rates by 50 basis points, the most it has done since 1995.

Since the bank’s separation from the British government in 1997, borrowing prices have increased six times in a row, reaching 1.75 percent this time.

By an 8-1 margin, the Monetary Policy Committee approved the historic half-point increase, citing escalating inflationary pressures in the UK and the rest of Europe since its May meeting.

The energy price cap was raised by 54 percent by Britain’s energy regulator, Ofgem, from April to account for skyrocketing worldwide costs, but it is anticipated to grow much more in October, when annual family energy expenses are anticipated to exceed £3,600 ($4,396).

The bank now anticipates that headline inflation would reach a peak of 13.3 percent in October and remain high for a significant portion of 2023 before tumbling to its target of 2 percent in 2025.

There is a danger that a “longer period of externally produced price inflation will lead to more permanent domestic price and wage pressures,” the MPC said, noting that the labor market is still tight and that domestic cost and price pressures are high.

Following the statement, Bank of England Governor Andrew Bailey stated that, “by some margin,” the shock of Russia’s war in Ukraine is now the main cause of U.K. inflation.

After U.K. inflation hit a fresh 40-year high of 9.4 percent in June as food and energy costs continued to rise, exacerbating the nation’s historic cost-of-living crisis, markets had generally priced in a more aggressive stance at the August meeting.

Source: CNBC
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