LONDON (AP) — The Bank of England raised interest rates by half a percentage point Thursday as it sought to tame double-digit inflation that is fuelling a cost-of-living crisis, public-sector strikes, and fears of recession.
The bank's monetary policy committee voted 7-2 to push its key rate to 4%, approving the 10th consecutive rate increase since a post-pandemic surge in the world economy and Russia's war in Ukraine drove inflation to 40-year highs.
Economists suggest this may be the last big rate increase for Britain's central bank after inflation slowed to 10.5% in December from a peak of 11.1% two months earlier.
It forecast a fall to about 4% by the end of the year.
“We have done a lot on rates already. The full effect of that is still to come through, but it is too soon to declare victory just yet,” bank Governor Andrew Bailey said at a news conference.
He added, “We have seen a turning of the corner, but it's very early days and the risks are very large.”
The bank pointed to high global inflation but said “it is likely to have peaked across many advanced economies, including in the United Kingdom,” noting falling energy prices and fewer supply chain disruptions.
The Bank of England, which noted more hikes “would be required” if inflation proves more persistent, said its recession forecast is less severe than previously projected.
The overall size of the economy will shrink throughout 2023 and the first quarter of 2024 as high energy prices and interest rates crimp spending, the bank said.
“This forecast is consistent with the technical definition of a recession, which is at least two consecutive quarters of falling output,” the bank said.
“But this is a much shallower profile for the decline in output than” expected in November.
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