England’s central bank predicted on Thursday that Britain’s economy would slip into recession by the end of the year, while raising interest rates by the biggest amount in more than 27 years to rein in inflation heightened by the Russian invasion of Ukraine. For.
The rate hike, by three-quarters of a point, raised the bank’s key interest rate to 1.75%, the highest since December 2008, the worst moment of the global financial crisis. The rise was expected after most economists said two weeks ago by the bank’s governor, Andrew Bailey, that the UK central bank would act “firmly” if the inflation outlook worsened.
And apparently it will get worse.
The bank said that the inflation rate will exceed 13% in the last three months of the year and will remain very high till 2023. The forecast shows sharp growth from 9.4% in June, its 40-year high, and paints a hazy picture of the future. Britons are already facing an inflationary crisis that has raised the cost of everything from groceries to utility bills.
Bank forecasters say inflation will hit its highest level in 42 years amid a doubling in wholesale natural gas prices due to the war. They say energy prices will push the economy into a five-quarter recession, with GDP shrinking every quarter in 2023.
Therefore, growth is very weak by historical standards, the bank said.
Central banks around the world are scrambling to contain rising inflation without propelling economies that were just beginning to recover from the coronavirus pandemic into recession. Higher interest rates increase the cost of borrowing for consumers, businesses and the government, which tends to reduce spending and slow the rise in prices, but such measures are also likely to slow economic growth. .