BoE: Resounding interest rate hike of 50 basis points to 1.75%

The Bank of England raised interest rates by another 50 basis points, the biggest since 1995, on Thursday despite warnings that a long recession looms as it steps up action to tame inflation expected to climb to 13 %.

Frustrated by the spike in energy prices caused by Russia’s invasion of Ukraine, the central bank’s Monetary Policy Committee voted 8 to 1 in favor of raising interest rates by half a percentage point to 1.75% .

Following this new increase, the Bank of England’s interest rate is at its highest level since late 2008.

Monetary Policy Committee member Silvana Tenreyro favored an increase of 25 basis points.

The increase was in line with economists polled by Reuters, who had expected the Bank of England to follow the more aggressive rate hike path other major central banks have taken.

The Bank of England also warned that Britain is facing a recession similar to that of the 1990s, but much smaller than the blow caused by the coronavirus pandemic or the recession caused by the financial crisis of 2008-2009.

According to Britain’s central bank, the country’s economy will begin to contract in the last quarter of 2022, a trend that will continue throughout 2023, making the coming recession the longest since the one that followed the financial crisis.

At the same time, he estimates that inflation is likely to peak at 13.3% in October – which will be the highest level since 1980 – mainly due to the increase in energy prices caused by Russia’s invasion of Ukraine.

In her previous estimates, she spoke of peak inflation above 11% and almost zero economic growth until at least 2025.

Today was the sixth rate hike by the Bank of England since December.

The BoE finally reiterated that it is ready to move more aggressively if necessary to curb persistent inflationary pressures.

However, he stressed that there are “extremely large” uncertainties about the economy – which could make the economic slowdown more or less severe, compared to its baseline scenario – and therefore its next moves will be determined by developments.

Sterling retreats

Sterling fell after the Bank of England’s resounding interest rate hike, the biggest since 1995, in its attempt to tame inflation that is expected to exceed 13% in the coming months.

Immediately after the rate hike, sterling turned lower, falling 0.2% to 1.2122 against the greenback, erasing a 0.3% rise to $1.2184 recorded shortly before the BoE’s announcement. Sterling is also down 0.5% against the euro.