With energy costs on the rise due to Russia's invasion of Ukraine, the Bank Rate was increased by a half percentage point to 1.75%, its highest level since late 2008, by the BoE's Monetary Policy Committee by a vote of 8-1.
Despite warnings that a protracted recession is imminent, the Bank of England increased interest rates on Thursday by the most in 27 years in an effort to curb inflation, which is now expected to reach 13%.
With energy costs on the rise due to Russia's invasion of Ukraine, the Bank Rate was increased by a half percentage point to 1.75%, its highest level since late 2008, by the BoE's Monetary Policy Committee by a vote of 8-1.
A lesser 25-basis-point increase received only one vote from MPC member Silvana Tenreyro.
The BoE cautioned that Britain was experiencing a recession with an output decline of 2.1% from peak to trough, similar to a downturn in the 1990s but much less severe than the impact of COVID-19 and the recession brought on by the 2008–2009 global financial crisis.
The final quarter of 2022 would see the economy start to contract, and the entire year of 2023 would see the economy decrease, making this the longest recession since the global financial crisis.
Consumer price inflation, which signalled the slowdown, was now predicted to reach its highest level since 1980 of 13.3% in October, primarily as a result of the spike in energy prices following Russia's invasion of Ukraine.
British consumer price inflation reached a 40-year high of 9.4% in June, exceeding the BoE's 2% objective by more than four times. This sparked labor unrest and put pressure on whoever becomes Boris Johnson's successor as prime minister of Britain to provide additional support.
Six rate increases have been made by the British central bank since December, but the one on Thursday was the largest since 1995.
Following recent significant rate hikes by the U.S. Federal Reserve, the European Central Bank, and other central banks, Governor Andrew Bailey and his colleagues have come under increased pressure to take bigger moves.
The BoE stated that it planned to begin selling its substantial stockpile of government bonds immediately after its next meeting in mid-September, with active sales of about 10 billion pounds a quarter.
After the BoE stopped reinvesting the profits of maturing bonds in February, the gilt holdings, which reached a peak of 875 billion pounds in December, subsequently decreased to 844 billion pounds.
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