It has been reported that the Bank of England, on Thursday, raised the interest rates by three-quarters of a percentage point. As per the details, this hike is the biggest in the last 33 years and the officials said that the country is trying to contain the soaring inflation even as the economic condition of the United Kingdom slides towards a recession that could last two years.
The details further said that the central bank of the country made its eighth hike in the interest rate in less than a year. The huge hike by the bank of England matches the moves by the US Federal Reserve on Wednesday and the European Central Bank last week.
Governor Andrew Bailey, during a presser, said that inflation is too high, and it is the responsibility of the bank to bring it down. “If we do not act forcefully now it will be worse later on”, Bailey added.
The observers keeping an eye on the matter say that as the central bank of England has raised the borrowing costs to cap rising prices, the economy of England will suffer.
The Bank of England expresses that the out of Britain’s economy is already contracting, and the latest hike in the interest rate is for the recession to continue through the first half of 2024 because the high energy prices and other tighter conditions of the economy weigh on spending.
The gross domestic product (GDP), as compared to the past recessions of the United Kingdom, is expected to remain weak as compared to the pre-recession levels for a “prolonged” period, Bailey added.
It is pertinent to mention here that, right after the announcement of the hike, the British Pound fell rapidly, dropping 2% against the UD dollar to $1.117. On the other hand, GBP also dropped 1.2% against the euro.
The Bank of England doesn’t think inflation will start to decline until next year. The central bank also hints that it will require more interest rate hikes in the coming months, though Bailey said market expectations appeared to be too aggressive.