(In the 6th paragraph, read “80 billion pounds” and not “100 billion pounds”)
by David Milliken
LONDON, Sept 22 (Reuters) – The Bank of England (BoE) on Thursday raised its main interest rate by half a point and assured that it would continue to “respond forcefully, as much as necessary” to inflation despite the probable entry into recession of the economy.
The British base rate is thus increased to 2.25% against 1.75%, as expected by the Reuters consensus.
The BoE now forecasts a contraction of 0.1% in British gross domestic product (GDP) in the third quarter, partly due to the exceptional holiday decreed on the occasion of the funeral of Queen Elizabeth II. This fall, after that already recorded in the second quarter, corresponds to the definition of a technical recession.
The half-point hike was voted in by five of the nine members of the Monetary Policy Committee (MPC), with three others voting for a three-quarter-point hike and one for a 25 basis point hike. only.
“If the outlook were to suggest more persistent inflationary pressures, including related to stronger demand, the Committee would respond forcefully, as necessary,” the BoE said in a statement.
The MPC also voted unanimously to reduce a total of 80 billion pounds sterling within a year of the portfolio of 838 billion (around 960 billion euros) of government and corporate bonds years through market purchases.
Britain’s inflation, the central bank said, is expected to peak next month at just below 11%, down from the 13.3% forecast last month before Liz Truss became prime minister and promised to cap inflation. higher energy bills and lower taxes.
The rise in prices should however remain for a few months above 10% on an annual basis before receding, specifies the BoE.
UK consumer price inflation slowed in August but, at 9.9% year on year, remains close to the 40-year high set in July at 10.1%, more than five times the objective of the BoE.
New finance minister Kwasi Karteng is due to present the government’s budget forecast on Friday, which could include more than £150bn of stimulus.
The BoE explains that it will take into account the consequences of these announcements at its monetary policy meeting in November. It notes, however, that capping energy prices, while limiting inflation in the short term, risks fueling inflationary pressures in the longer term.
On the financial markets, the pound sterling widened its losses a few minutes after these announcements to fall back below 1.13 dollars; it had hit a 37-year low at 1.1213 earlier in the day.
Yields on UK government bonds were on the contrary up sharply, at
% for two-year bonds and
% for ten-year bonds, the highest since July 2011.
On the London Stock Exchange, the FTSE 100 index lost
%. (Report David Milliken and Andy Bruce, French version Marc Angrand, edited by Sophie Louet and Kate Entringer)