The Bank of England Monetary Policy Committee (MPC) has agreed a 0.75 point rise in interest rates, with the base rate now reaching 3%.
The uplift is the eighth consecutive interest rate rise and is the single biggest increase in the Bank of England base rate since 1989. The Bank’s economists voted 7-2 in favour of the 0.75 point raise as part of the UK’s central bank’s role in curbing inflation, with the CPI currently at 10.1% and expected to rise further in the final quarter of 2022 according the Bank of England’s projections. In spite of the steep uplift, interest rates remain below the level seen prior to the 2008-9 financial crisis.
The rate rise has taken place despite concerns that increased interest rates could further hurt household finances by driving up mortgage repayments and limited access to credit. The Bank of England in September confirmed it remained committed to raising interest rates to combat inflation in response to economic turbulence during Liz Truss’ tenure as Prime Minister, reiterating that the delivering on the 2% inflation target was the Bank’s primary remit.
Commenting on the wider economic outlook, the Bank of England noted that inflation was appearing to persist with regard to domestic prices and wages, and confirmed it expected to take further action on inflation at its December MPC meeting.
The Bank of England also revealed that its economists expect the UK to enter recession, forecasting a 0.75% contraction in GDP in the second half of the year, with growth not expected to return until 2024. Financial markets have reacted poorly to the Bank’s rate rise and outlook for the UK economy, with the pound falling 1.4% against the dollar, and 0.8% against the euro shortly after the 12pm announcement,
Ahead of further expected interest rate rises, the Chancellor of the Exchequer Jeremy Hunt will set out his Autumn Statement, postponed to mid-November following the recent change in Prime Minister. The content of the statement will inform future interest rates decisions by the Bank of England, as well as its February economic forecast, but any predictions of upcoming policy announcements have not impacted this latest rate rise.
The historic rate rates comes after the US Federal Reserve raised its interest rates by a similar 0.75 percentage points to their highest level since 2008.