The Bank of England (BoE) today decided to raise interest rates to the highest level since 2009 on Thursday by raising interest rates by 0.25% to 1%. This action was taken to tackle inflation which now stands at 7% and at the same time the BoE warns that the British economy is at risk of facing a recession.
Nine BoE members voted with a 6-3 increase from 0.75% to 1% with Catherine Mann, Jonathan Haskel and Michael Saunders proposing a larger increase of 1.25%.
Economists surveyed by Reuters had predicted a more dovish 8-1 vote to raise rates to 1%, with 1 policymaker opposing the need for an interest rate hike.
The pound depreciated about a cent against the US dollar to below the $ 1.245 trading level. British government bond yields soared for a while and began to fall back to one -day lows as investors were able to digest BoE policy statements.
Central banks are doing their best to deal with a surge in inflation that is deemed temporary when it begins with the reopening of the post-Covid-19 global economy and then worsens following Russia’s invasion of Ukraine.
The BoE said it expressed concern over the closure of part of the industry following the outbreak of a Chinese pandemic that could threaten the supply chain once again and add to inflationary pressures.
On Wednesday, the U.S. Federal Reserve. raised the rate by half a percentage point to the 0.75-1.0%range, its biggest increase since 2000 and the Fed chairman Jerome Powell proposed to raise another 50 basis points for the next two meetings.
The BoE move represents the fourth consecutive rate hike since December which is the fastest increase in borrowing costs in 25 years and at the same time underscores further increases despite concerns about a sharp economic slowdown.
The BoE maintained its forecast for economic growth this year at 3.75%, but reduced its forecast for 2023 by a contraction of 0.25 from the previous 1.25% growth estimate.
