The Bank of England announced its largest interest rate hike ever 1992 on Thursday in an effort to combat the sky-high inflation that it said was sending Britain it into recession that would continue until mid-2024.
The BoE announced after its regularly scheduled meeting that it was raising borrowing costs by 0.75 basis points to three percent. The highest level that since global financial crisis of 2008, in order to curb UK inflation. Which it predicts will soon reach a four-decade high of close to 11 percent.
BoE governor Andrew Bailey said at a press conference that “it is going to be a rough road ahead.”
Our country has become poorer as a result of the unexpected rise in energy prices brought on by Russia’s invasion of Ukraine. For some time, the level of economic activity is expected to be stagnant or even decline “He issued a warning.
With rising food and energy prices. The most recent rate increase is a reflection of aggressive rate tighten by central banks around the world.
The US Federal Reserve abruptly raised interest rates by 0.75 percentage points on Wednesday. And its chairman, Jerome Powell, hinted that rates will rise more than anticipated.
The BoE predicted that British inflation would reach a top of 10.9 percent this year. But because the rate is so high, analysts believe it may reach as high as 5 percent in the near future.
The struggling British government took a hit when the minutes of its meeting worried of a “tough outlook for UK economy” that was “likely to stay in recession for a considerable period.“
According to the BoE, from the 3rd quarter, the economy has contracted. Entering a severe recession that is expected to persist through the first half of 2024.
On the assumption that the recession would endure for a long time, the pound fell 2% against the dollar
Naeem Aslam, chief market analyst at Avatrade, stated that “a standard textbook trade is out the window since currencies usually move higher whenever a central bank rises rates.”
The economy, markets, & currency are going to tank in the upcoming months as a result of the difficult times that lie ahead.
Millions of People are expected to experience a worsening cost-of-living problem as a result of the BoE rate increase. As increases by central banks cause retail lenders to raise interest rates on their personal loans.
According to Craig Erlam, an analyst at trading platform OANDA. “The central bank has had the terrible burden of combating surging inflation amid significant economic and political uncertainty.“
After Liz Truss, the former British prime minister, frightened markets with her debt-fueled budget, prompting her to quit, and the BoE responded by purchasing UK government bonds on an emergency basis, mortgage payments in the UK have increased significantly in recent weeks
In an effort to calm the markets, her successor Rishi Sunak hinted at tax increases in a budget plan on November 17, even though doing so would further hurt Britain’s economy.
Former UK finance minister Sunak told lawmakers on Wednesday. “I think everyone recognises we do have a hard economic picture and painful considerations will need to be taken.”
The yearly rate of inflation in Britain is at 10.1%, the highest in 30 years.
Early in 2020, when the Covid-19 outbreak started. The BoE cut its rate of interest to a record-low 0.1 % while simultaneously pumping enormous amounts of fresh money into the economy.
The Bank of England began raising interest rates in December of last year. And the increase on Thursday was the eighth consecutive round.