Bank of England Interest Rates: UK economy plunges into recession, Bank of England hikes interest rates to 2.25%, highest since 2008

As the economy of the United Kingdom (UK) is grappling with recessionary winds, the Bank of England has increased the key base rate to 2.25 percent, the highest since 2008. Notably, the federal bank has increased the interest rates for the seventh consecutive time. Five members of the 9-member monetary policy committee (MPC) of the Bank of England voted in favor of increasing the base rate by 0.5 percent, while three members voted for a 0.75 percent increase. Meanwhile, one member voted for a 0.25 percent increase.

While increasing the interest rates, the bank said that the economy was moving towards a second consecutive quarter of falling output. The British economy witnessed a drop of 0.1 percent in the GDP in the quarter ending June 2022. The bank has stated that the quarter ending September can see a further decline of 0.1 percent. The bank cited a drastic fall in consumer spending and decreased activity in manufacturing and construction as the prime reasons behind the anticipated decline in the GDP. It also stated that the additional public holidays – one for Queen Elizabeth II’s platinum jubilee and one for her funeral this week – have added to the woes of the economy.

Bank of England cuts growth forecast as Brexit bites

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The BoE cut its estimate for 2017 gross domestic product growth to 1.7 percent from a forecast of 1.9 percent given three months ago, it said in a report accompanying the latest monetary policy update.

The bank’s decision to raise interest rates has come just a day before the announcement regarding the details of the energy price guarantee by the British government. The government has also announced a package of tax cuts which is expected to be over £150bn. With these measures, the government hopes to kickstart economic growth and protect households from rising expenses.

Notably, the inflation rate in the United Kingdom has reached 9.9 percent, the highest since the early part of the 1980s. Besides, the current inflation rate is five times more than the bank’s target rate of 2 percent.

FAQs:

  1. What will be the new key base rate after the Bank of England increases the interest rates?
    The Bank of England has increased the key base rate to 2.25 percent.
  2. What is the current inflation rate in the United Kingdom?
    The current inflation rate in the United Kingdom is 9.9 percent.

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