As the UK enters its fifth consecutive quarter of recession, the Bank of England raised interest rates to 1.75 percent.

As the cost-of-living problem weakens the economy, the BoE hiked interest rates to 1.75 percent. Thursday lunchtime, the Bank announced intentions to boost rates from 1.25 percent. The Bank predicts the UK’s GDP to decrease 2.1% over five quarters. 

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The Bank predicts CPI inflation will reach 13.3% in October, the highest level since September 1980. The MPC voted 8-1 in favour of a 1.75 percent increase. Silvana Tenreyro was outvoted for a quarter-point increase, to 1.5 percent. 

In the meeting minutes, the Bank indicated “more forceful policy action was justified.”

“Inflationary pressures were becoming more persistent and were broadening to more domestically driven sectors,” it added. 

“Overall, a faster pace of policy tightening at this meeting would help to bring inflation back to the two percent target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening cycle later.”

The pound fell 0.5% versus the dollar to 1.211 after the Bank of England’s rate hike was announced, after being 0.7% higher beforehand. The pound fell 0.5% vs. the euro to 1.189. 

The Bank said: “Inflationary pressures in the United Kingdom and the rest of Europe have intensified significantly since the May Monetary Policy Report and the MPC’s previous meeting.”

“That largely reflects a near-doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs.”

“As this feeds through to retail energy prices, it will exacerbate the fall in real incomes for UK households and further increase UK CPI inflation in the near term.”

“CPI inflation is expected to rise more than forecast in the May Report, from 9.4 percent in June to just over 13 percent in 2022 Q4, and to remain at very elevated levels throughout much of 2023, before falling to the two percent target two years ahead.”

Bank executives compared the dip to the early 1990s recession. 

Projections say unemployment will grow next year. 

The Bank anticipates inflation to dip below 2% in 2023. 

It continued, “The United Kingdom is now projected to enter recession from the fourth quarter of this year.”

“Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.”

The Bank predicts that the energy price cap will climb from £1,971 to £3,450 per year for the typical family in October due to Ofgem’s change. Energy consultant Cornwall Insight predicts additional rises to £3,616 in January and £3,729 in April. Others say it might go higher. 

New survey suggests 2/3 of the population is worried about increasing interest rates.

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