Bank of England raises interest rates to a fresh 14-year high to 3.5pc

The Bank of England announced its ninth consecutive increase in interest rates. This brings them to their highest level since before the global financial crisis.

The monetary policy committee decided to increase the base rate by 0.5 percent to 3.5pc. In 2008, it was at these levels for the last time.

The monetary policy committee split in three, voting by a majority vote of 6-3 to raise the Bank Rate by 0.5% to 3.5pc.

Catherine Mann wanted a higher rise, and two women, Silvana Tenreyro (Swati Dhingra), voted for tightening to a halt.

Andrew Bailey, Bank of England Governor, has come under fire for allowing inflation in October to hit a 41-year high of 11.1pc. This is more than five times higher than the target of 2pc.

Inflation fell to 10.7pc last November, which will be reassuring for policymakers.

The US Federal Reserve pledged to continue with interest rate increases as it announced an increase of 0.5% last night, despite signs that inflation is at its peak on both sides.

The pound was down 0.8 percent against the dollar this morning before the decision.

Although the Bank of England offered a slightly better outlook for the economy, it still warned that Britain is headed into a prolonged recession due to the worst inflation in 40 years.

According to the MPC, the Autumn Statement measures of the Chancellor, which include the extension and support for energy households, will boost GDP by 0.4 percent over the next year, and lower its inflation forecast by 0.75 percent by mid-2022.

The Bank forecast that the GDP would fall by 0.1 percent in the last three months of 2022. This is 0.2 percentage points more than was expected in November. However, the Bank also predicted that the third quarter would be better than anticipated.

This means that the Bank has decided to raise rates at all its monetary policy meetings in order to control the highest inflation for four decades. However, economists and markets believe it will consider a pause early next ye.

MPC stated that the labour market is tight, and evidence has shown inflationary pressures in wages and domestic prices. This could indicate greater persistence and justifies a more forceful monetary policy response.

“Further increases of the Bank Rate may be necessary for a sustainable return to target inflation.”

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