The Bank of England (BOE) raised its interest rate by 75 basis points on Thursday, the largest hike since 1989, in an effort to curb soaring inflation. Growth is projected to continue to fall lasting more than a year.
The 75 basis point, the eighth consecutive hike, takes the Bank Rate to 3% of the main lending rate after the Monetary Policy Committee, the highest Rate since November 2008. Rising borrowing costs will hurt an already weak economy in the coming tough winter, as lower real incomes and higher prices.
The BOE estimated the UK economy will slip into recession of 0.5% in the 3rd quarter. It also expected a prolonged contraction, the duration and level of which depends on how far the Bank raised interest rates to press inflation.
As inflation spiked to 10.1% in September and is expected to rise to 11% in the fourth quarter, “if we do not act forcefully now it will be worse later on.” BOE Governor Andrew Bailey said.