In an effort to tame soaring inflation, the Bank of England (BoE) is expected to raise interest rates by 0.75 percentage points, according to the country's media outlets.
The BoE’s eighth rise in a row would be the largest since 1989. It is set to push the base rate to 3 percent, having been only 0.1 percent less than a year ago. This is reckoned to be the highest level since the global financial crisis in 2008. The Monetary Policy Committee’s nine members will announce their fiscal policy decision on Thursday, with the BoE also releasing long-term inflation forecasts. British people are expected to be warned that the cost of living will be much higher than its target of 2 percent.
The BoE's forecasts are expected to say that "the economic outlook has deteriorated further", analysts at Deutsche Bank were cited by publications as saying.
"Conditioned on market pricing, the UK economy will probably fall into a deeper and more prolonged recession," they added.
UK May Be in Recession, Says BoE as It Warns Support Package Risks 'Adding to Inflationary Pressure’
23 September 2022, 05:51 GMT
In his recent speech, the BoE's Deputy Governor for Monetary Policy, Ben Broadbent, emphasized that the Gross Domestic Product (GDP) would take a “pretty material” hit from the fiscal policy's tightening moves. Earlier, the BoE's growth forecasts pointed to a five-quarter recession for the country.
The moves by the Bank follow similar interest rate rises by America's central bank: the Federal Reserve confirmed on 2 November that it will increase interest rates by 0.75 percentage points.
"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the US bank said in its statement, adding it was "strongly committed to returning inflation to its 2 percent objective."
Weighing in on the anticipated BoE's monetary policy tightening decision, the UK Labour party’s shadow chancellor, Rachel Reeves, is reportedly planning to warn of the detrimental impact on consumers and businesses.
"Rising interest rates will mean families with already stretched budgets will be hit by higher mortgage payments. It will mean higher financing costs for businesses. And it will mean profound implications for growth as demand is sucked out of the economy,” Reeves is expected to say at the Anthropy conference in Cornwall.
The soaring energy costs, inflation, rising interest rates all indicate that the UK economy is expected to be in recession until the middle of 2023, a new EY ITEM Club Autumn Forecast revealed. The UK economic forecasting group also predicted 0.3 percent contraction in GDP for next year.
The disheartening forecasts come as more than a quarter of British people are increasingly resorting to credit cards to buy food, and a fifth have relied on borrowed money this year amid rising prices, according to a recent Ipsos poll, and the Office for National Statistics revealed that 93 percent of adults across the country reported an increase in their cost of living in August to September 2022.