Bank votes for largest jump in interest rates in 30 years, warning of long recession

The Bank of England announced the largest increase in interest rates since 1992, and warned that the UK is facing a long recession.

Its Monetary Policy Committee voted 7-2 to raise the rate by 0.75 percentage points, taking it up to 3% – the highest level seen since the end of 2008.

It said that further increases in interest rates “may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets”.

According to the Bank, the UK’s economy will shrink by 0.5% in its third quarter. It is also expected to shrink by 0.3% in its final quarter in 2022. It is now predicting the UK economy will “remain in recession throughout 2023 and 2024 H1, and GDP is expected to recover only gradually thereafter”.

Two minority MPC members voted for an increase of 0.25 and 0.5 percentage points.

In a statement, the Bank said: “What will happen to interest rates will depend on what happens in the economy.

“At the moment, we expect inflation to fall sharply from the middle of next year.”

Rates have risen since December, when they were 0.1%, as the Bank tries to curb rising inflation. This rise is ahead of the much-anticipated Autumn Statement later in the month.

The MPC said: “GDP is expected to decline by around 0.75% during 2022 H2, in part reflecting the squeeze on real incomes from higher global energy and tradable goods prices. However, the Energy Price Guarantee is expected to support a less dramatic fall in activity at the end of the year than in August. The labour market remains tight, although there are signs that labour demand has begun to ease.”

Before the Bank of England became independent in 1992, the Government raised interest rate by two percentage points to 12% on what was known as Black Wednesday.


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