The Bank of England, the Central bank of the United Kingdom, raised interest rates by 50 basis points on Thursday. This is the highest increase since 1995.
Due to the increase, the bank now applies an interest rate of 1.75 percent. The Bank of England implemented the measure to curb rising inflation. In June, it was 9.4% in the UK. Most economists had expected an increase of 50 basis points.
However, the Bank of England warned that the UK could fall into a protracted recession, which will last more than a year. In addition, it does not rule out further increases.
“The committee will be particularly alert to indications of more persistent inflationary pressures and will take strong action if necessary,” Governor Andrew Bailey told reporters in London. “All options are on the table for our meeting in september and beyond.”
According to the central bank, the likelihood of a recession, which would begin during the fourth quarter and could last for more than a year, is high. That would be the longest recession since the 2008 financial crisis. The bank expects the economy to contract by 2.1 percent during that period.
In addition, inflation could continue to rise for a while, to an expected peak of 13.3 percent in October. This is mainly due to high energy prices. That inflation could persist stubbornly through the year 2023, causing a severe blow to the real incomes of residents.
