The Bank of England (BOE) raised interest rates since 1995. BOE also predicted that the economy of UK will fall into recession later 2022, highlighting urgency of global central banks to fight against inflation.
The rate increase to 1.75 percent from 1.25 percent was the highest hike since 1995, and the first half-point increase since BOE was granted independence in 1997. This move indicates recent rate hikes by the European Central Bank, and the Federal Reserve, reflecting fears that the inflation will be allowed to persist.
The Bank of England (BOE) has also offered a bleak outlook for the United Kingdom, saying that the economy was poised to enter a recession that would last for 5 consecutive quarters starting in the last three months of 2022. The bank said that inflation will continue to increase well above the current high in 40 years, and that household income will drop sharply.
The half-point increase was widely expected, and the warning about the fragility of the UK economy and stagflation, which is the toxic combination of no economic growth and inflation, has taken the markets aback.
The British pound has decreased against the dollar immediately after the announcement of BOE before paring its losses and the yield on the 10-year bond fell of the United Kingdom. The sharply increasing borrowing costs during a recession will do more damage to the economy of the United Kingdom.
