BoE raises rates to 1.75% and warns of year-long recession |
The Bank of England raised interest rates by 0.5 percentage points to 1.75% on Thursday, the biggest increase in 27 years, with a prediction that inflation would hit 13% by the end of the year. It was the sixth consecutive raise and the biggest single increase since 1995 and officials said the Bank was ready to act “forcefully” on interest rates if inflation persists. The Bank said Britain would enter five consecutive quarters of recession with GDP falling by as much as 2.1%, while real household incomes are expected to fall by 3.7% across 2022 and 2023 – the largest hit since records began in 1963. BoE Governor Andrew Bailey said families faced a "very big" shock to their finances but it was right to take a strong hand to inflation. "The alternative is even worse in terms of persistent inflation," he said. Meanwhile, the BoE’s Monetary Policy Committee said on Thursday it was "provisionally minded" to start a bond sale programme next month, offloading some of the debt it purchased during more than a decade of quantitative easing. Sales of UK gilts by the Bank will launch at a pace of roughly £10bn per quarter, with the aim of reducing the total stock by £80bn within 12 months. Commenting on the move, James Smith, an economist at ING, said: "Assuming a reduction of £80bn per year, this means private investors will have to increase their exposure to gilts by the same amount, on top of regular deficit financing. This is clearly a risk.”