Bank of England (BoE) on Thursday (August 4) unveiled the biggest interest rate rise in 27 years and also warned that Britain will sink into a lengthy recession later this year as inflation rockets even higher. Amid a cost-of-living crisis, borrowing is becoming more expensive.
Notably, this is the sixth consecutive hike by BoE’s Monetary Policy Committee (MPC) since December. Today, MPC voted 8-1 to lift its key rate by 0.50 percentage points from 1.25 per cent to 1.75 per cent.
The hike means there will be an immediate increase in mortgage bills for millions of homeowners on the tracker. Or even the variable mortgages that are in line with the BoE rate.
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The BoE said that the “inflationary pressures in the United Kingdom and the rest of Europe have intensified significantly” since May.
The bank added, “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.”
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Now, the BoE has anticipated that the UK economy would enter a period of recession at a time when the nation is facing a cost-of-living crisis. The bank said that the recession will last until late 2023. It was predicted that UK inflation will peak this year at just over 13 per cent. In June, UK inflation had already jumped to a four-decade high of 9.4 per cent.
The BoE added: “The latest rise in gas prices has led to another significant deterioration in the outlook for (economic) activity in the United Kingdom and the rest of Europe. The United Kingdom is now projected to enter recession from the fourth quarter of this year.”
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