The Bank of England, the UK’s central bank, has raised its base interest rate to 3 percent, the highest in 14 years.
All but two members of the bank’s Monetary Policy Committee voted to push up interest rates by 0.75 percentage points, to 3 percent from 2.25 percent, during a crunch meeting on Nov. 3.
The latest rate rise—the biggest single increase to the UK base rate since 1989—pushes interest rates to their highest level since early December 2008 and will heap extra pressure on households.
At a press conference held after the rate hike was announced, Bank of England Gov. Andrew Bailey said it will be a “tough road ahead” for the UK and the country’s households.
He acknowledged that eight rate rises since December 2021 are “big changes and they have a real impact on people’s lives.”
“If we do not act forcefully now, it would be worse later on,” Bailey said.
Further Hikes Expected
The bank said further interest rate hikes could be required to tame runaway inflation, but it doesn’t expect rates to rise as high as the 5.2 percent that the market has forecast for the final quarter of next year.The bank also stated that the UK could be on course for the longest recession since reliable records began in the 1920s.
The country’s gross domestic product (GDP) could shrink every quarter for two years, with growth only coming back in the middle of 2024.
But the bank stated that the recession will be less than half as severe as the 2008 financial crisis.
From its highest to lowest point, GDP is expected to drop 2.9 percent, according to the central bank, compared with 6.3 percent during the financial crisis.
‘No Easy Options’
Responding to the interest rate rise, Chancellor of the Exchequer Jeremy Hunt said controlled inflation is the government’s “No. 1 priority.”“The most important thing the British government can do right now is to restore stability, sort out our public finances, and get debt falling so that interest rate rises are kept as low as possible,” Hunt said.
He said that “there are no easy options” and that the government will need to “take difficult decisions on tax and spending.”
The main opposition Labour Party blamed the rising interest rates on the Conservative government’s economic management.
“It’s been hard enough already, this is going to make things much, much harder,” Labour leader Sir Keir Starmer told Times Radio.
He blamed 12 years of Conservative government for leaving the nation more exposed because of a lack of growth, saying mortgage payers know they’re paying a “Tory premium.”
