The Bank of England announced on Thursday a 50 basis point increase in its key rates, a drastic measure to counter inflation which it now sees exceeding 13% over one year in October, when the United Kingdom will enter in according to it. recession until the end of 2023.
The Monetary Policy Committee opted by a majority of 8 to 1 for an increase in the key rate of 0.5 percentage point, 1.75%, explains the monetary institution in the minutes of the meeting, following in the footsteps of the Federal Reserve. American and the European Central Bank by accelerating the pace of its increases.
It’s the BoE’s biggest rate hike since 1995, when UK inflation hit a 40-year high of 9.4% yoy in June, fueling a looming cost-of-living crisis. particularly the less wealthy British households.
As gas prices have soared since the start of Russia’s invasion of Ukraine, the BoE expects UK energy regulator Ofgem to raise its electricity price cap to consumers by 75% in October.
The regulator also announced on Thursday that the ceiling would henceforth be revised every quarter, against only twice a year so far, to improve market stability, which, in the current context, suggests a new painful rise in prices. from the month of January.
The damage will be heavy for the economy: we expect output to contract every quarter between the last of 2022 and the last of 2023, the Bank warns.
And growth after this period remains very weak, completes the monetary institute, which projects in detail a growth of 3.5% in 2022, a first contraction of GDP of 1.5% in 2023 and a second of 0.25%. % in 2024.
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In these circumstances, the BoE’s choice to raise its rates even faster than it has done since the end of 2021 risks weighing on economic activity by making borrowing more expensive for companies and individuals.
A faster pace of monetary policy tightening today should help bring inflation back to its medium-term 2% target, and reduce the risk of a longer and more costly (monetary policy) tightening cycle in the future, explains the monetary committee.
The BoE has also indicated that it will vote in September on whether to begin actively selling the bonds it holds under its asset purchase program.