Bank of England raises interest rates to 1% despite recession risk

The British central bank raised interest rates to 1% on Thursday (5) – the highest level since 2009 – to fight inflation which is now above 10%, even as it sent a warning that the United Kingdom is running risk of falling into recession.

The Bank of England’s nine members voted 6-3 for the 0.25 percentage point increase. Catherine Mann, Jonathan Haskel and Michael Saunders called for a higher increase, to 1.25%, to eliminate the risk of rising inflation taking hold in the economy.

Economists consulted by the Reuters predicted an 8-1 vote to raise interest rates to 1%, with only one official opposing the hike.

Central banks around the world are struggling to cope with rising inflation that they once described as transient when it began with the reopening of the global economy, before Russia’s invasion of Ukraine sent energy prices soaring.

The Bank of England said it was also concerned about the impact of China’s Covid-19 lockdown policies, which threaten to hit supply chains again and add to inflationary pressure.

On Wednesday, the Federal Reserve raised interest rates by 0.5 percentage point to a range of 0.75%-1.0%, the biggest increase since 2000. Fed Chair Jerome Powell said that further increases of 0.5 point are possible at the next two meetings.

The move by the British central bank represents the fourth consecutive rise since December – the fastest rise in borrowing costs in 25 years – and it has hardened its message about further increases despite its concerns about a sharp economic slowdown.

The bank said most policymakers believe that “some degree of further tightening of monetary policy may still be appropriate in the coming months.”

The monetary authority even dropped the word “modest” to describe the scale of interest rate hikes ahead.

A split has emerged in the Monetary Policy Committee, with two members saying the guidance was too strong given the risks to growth.

UK consumer price inflation hit a 30-year high of 7% in March, more than triple the 2% target, and the central bank has revised up its price growth forecasts to show a peak above 10%. % in the last three months of this year.