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Economy Blues: Bank Of England effects rate increase in 33 years

Bank of England

*The Bank of England battles to contain highest prices in decades, and its rate call Thursday is widely expected to worsen a cost-of-living crisis for millions of Britons as hikes by Central Banks have see retail lenders push up interest rates on their loans

Isola Moses | ConsumerConnect

As Central Banks worldwide are battling the highest prices in decades, the Bank of England (BoE) is widely expected to hike its key interest rate Thursday, November 3, 2022, by the biggest amount since 1989.

It was learnt the move is part of the Bank’s bids to cool sky-high British inflation in recent times.

Following a regular meeting, the BoE is expected to lift borrowing costs by 0.75 percentage points to three percent, according to market consensus, which would be the highest level since the 2008 global financial crisis, agency report said.

However, some analysts are predicting a rise of one percentage point, also a 33-year high.

The move would mirror aggressive rate-tightening by central banks worldwide as economies battle the highest prices in decades, report stated.

Report also indicates that ahead of the UK decision, the London stock market opened sharply lower after the US Federal Reserve sprang a fourth consecutive hike of 0.75 percentage points — and its boss Jerome Powell suggested they would go higher than expected.

‘Unenviable Job’

The BoE rate call, due at 1200 GMT, is set to worsen a cost-of-living crisis for millions of Britons as hikes by central banks see retail lenders push up interest rates on their own loans.

“The Bank of England will likely join the Fed in raising rates by 75 basis points,” said Oanda analyst Craig Erlam.

“The central bank has had the unenviable job of fighting soaring inflation amid enormous economic and political uncertainty.”

Repayments on UK mortgages have surged in recent weeks also after the debt-fuelled budget of previous British prime minister Liz Truss spooked markets, forcing her to resign and triggering emergency buying of UK government bonds by the BoE.

Her successor Rishi Sunak has attempted to bring calm to markets by hinting at tax rises in a fresh budget November 17, even if such a move further harms Britain’s economy.

“I think everyone knows we do face a challenging economic outlook and difficult decisions will need to be made,” Sunak, a former UK finance minister, told the Parliament Wednesday, November 2.

British annual inflation stands above 10 percent, the highest level in 40 years, on soaring food prices and energy bills.

Inflation Update

The BoE will also give its latest inflation and growth forecasts, with analysts indicating that the UK economy may already be in recession.

Forecast Swissquote analyst Ipek Ozkardeskaya said: “The Bank of England is expected to hike its interest rate by no more than 75 basis points, on conviction that the Sunak government would opt for some fiscal austerity, and nothing too crazy to wreak havoc, again.”

As the COVID-19 pandemic began in early 2020, the BoE slashed its key interest rate to a record-low 0.1 percent and also pumped massive sums of new cash into the economy.

The Bank of England started raising rates last December and another hike Thursday would be the eighth increase in a row, according to report.

Ruth Gregory, Senior UK Economist at Capital Economics, predicts that the BoE will raise its interest rate by one percentage point Thursday, and by the same amount December this year.

Gregory said: “If we are right that domestic inflation will be sticky, it may mean that the Bank of England ultimately has to act more aggressively further ahead.”

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