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Banks (Finance)

Bank of England Raises Interest Rates to 1.75%, Warns of Longest Recession Since 2008

Strategic Insights

— 1 min read

The Bank of England's governor, Andrew Bailey, has emphasized the need to control rampant inflation, highlighting that it is the "absolute priority" for policymakers. This decision to raise interest rates to 1.75% from 1.25% is the biggest single rise since 1995. The Consumer Prices Index (CPI) is expected to reach 13.3% in October, driven by soaring gas prices, if the regulator, Ofgem, hikes the price cap on energy bills to around £3,450. Bailey acknowledged the significant impact this will have on people in the UK, but stressed that inaction would lead to larger interest rate increases later.

Key Takeaways:

  • The Bank of England has raised interest rates to 1.75% from 1.25%, the biggest single rise since 1995.
  • Consumer Prices Index (CPI) inflation is expected to reach 13.3% in October, driven by soaring gas prices.
  • Governor Andrew Bailey emphasized that controlling inflation is the "absolute priority" for policymakers.
  • The Bank expects rocketing energy prices to push the economy into a five-quarter recession, starting with GDP shrinking in the fourth quarter of this year and in each quarter throughout 2023.
  • Real household incomes will drop by 1.5% this year and 2.25% next year.
  • The Monetary Policy Committee voted 8-1 to increase the base rate to 1.75%.
  • The Bank forecasts GDP will shrink up to 2.1% from its highest point, with an economic cost due to the war in Ukraine.

Statistics:

  • The Consumer Prices Index (CPI) is expected to reach 13.3% in October.
  • The Bank expects GDP to shrink in the fourth quarter of this year and in each quarter throughout 2023.
  • Real household incomes are forecast to drop by 1.5% this year and 2.25% next year.
  • The Monetary Policy Committee voted 8-1 to increase the base rate to 1.75%.
  • The Bank forecasts GDP will shrink up to 2.1% from its highest point.

Sources:

  • Bank of England (@bankofengland)
  • Bank of England (@bankofengland)
  • Bank of England, (August 4, 2022): Monetary Policy Report

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