The Bank of England has raised interest rates by 25 basis points in a row since December last year and 80 percent of analysts polled by Bloomberg expected a double hike on Thursday.
Recession awaits
“Great Britain is expected to enter recession from the fourth quarter of this year,” the bank wrote in an accompanying report. Real household income is expected to fall sharply this year and in 2023, and consumption growth will remain negative.
UK inflation was 9.1 per cent in June – the highest level for more than 40 years. The country’s central bank announced that it expects inflation to be above 9 percent in the coming months and above 11 percent in October.
The Bank of Great Britain also announced that it was linked to energy prices.
The central bank now offers a new inflation forecast of 13 percent for the fourth quarter. They believe inflation will remain at high levels until 2023 before reaching the 2 percent target next year.
Today’s increase was voted down almost unanimously, as only one person voted no, the AP reports.
Political situation affects
At the same time, the domestic political environment in Great Britain would complicate the Bank’s work. Conservative candidates Liz Truss and Rishi Sunak are currently fighting over who will be Britain’s next prime minister, and they both have widely differing views on where tax and debt levels should be. This may require different reactions from the central bank.
Liz Truss has promised immediate tax cuts for individuals and businesses. According to economists polled by Bloomberg, this could help stimulate the economy — but persistently high inflation, which in turn could cause the central bank to act more aggressively and raise interest rates even more.
Rishi Sunak, the country’s former finance minister, was quick to comment on today’s hike. He has repeatedly criticized Liz Truss’ promise of tax cuts.
– The bank acted today and the future government must deal with inflation and not worsen the situation, he said when the central bank announced, Reuters reported.
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