The Bank of England announced its decision to hike interest rates a whopping 0.5% to 1.75% in its meeting today, representing the highest level since 2009.
The move comes in a bid to tackle soaring inflation, which currently stands at a 40-year record of 9.4% and was previously estimated to reach 11% in October this year.
However, the Bank reported that inflation is now expected to hit 13.3% this autumn, the highest level since 1980, and remain as such for the bulk of 2023 before falling to the organisation’s 2% target in two years.
A 0.5% interest rates hike has not been seen in 25 years, with the aggressive move signalling trouble ahead for the UK economy.
The vote was passed with eight members of the Monetary Policy Committee in favour and one member suggesting a lower rate hike of 0.25% to 1.5% instead.
“After successive 0.25% rises, the Bank of England is taking a tougher stance on inflation with today’s 0.5% hike,” said Nutmeg personal finance specialist Annabelle Williams.
“There hasn’t been a 0.5% rate rise for more than a quarter of a century, and the expectation is that bringing interest rates to a higher level at a swifter pace will be more effective at calming inflation, which reached 9.4% on the CPI measure in June.”
“The prospect of lower inflation should provide some relief to households and businesses struggling with the highest inflation for 40 years. But a rise in interest rates will take time to dampen down prices and there’s no guarantee of how far prices will fall.”
Recession coming in Q4
The Bank of England confirmed what analysts have seen coming for a long time now, that the country is heading towards a recession from Q4 2022.
GDP is currently slowing at a greater rate than expected, as rising gas prices feed into spiking inflation as a result of the Ukrainian war.
Real household income after tax is anticipated to fall sharply over 2022 and 2023, with a negative consumption growth.
However, the Bank of England said it projected no additional price growth in global commodities, and added it expected tradable goods inflation to fall back in the coming months, with the first signs already evident in the economy.
