Interest rates increased once again on Thursday as the Bank of England aims to tackle rocketing inflation.
The Monetary Policy Committee (MPC) voted 6-3 to increase rates from 0.75% to 1% – a level not seen since early 2009. This marks the fourth consecutive increase since December.
In a grim set of forecasts, the Bank warned that inflation is set to peak at over 10% this year, and predicted growth will contract in the final three months of 2022 as the cost squeeze sees households rein in their spending.
The UK is set to narrowly miss a technical recession, as defined by two quarters in a row of falling gross domestic product (GDP), but the Bank forecasts very weak quarterly growth in 2023 and a contraction as a whole next year, with GDP falling by 0.25% and unemployment picking up sharply as cost pressures hit hard.
The prediction for growth in 2022 remains unchanged at 3.75%, although the Bank also slashed its growth outlook for 2024 to 0.25% from the 1% it predicted in February.
Sky-high inflation will see household disposable income plunge by 1.75% this year – the second highest on record – while overall real income will tumble by an unprecedented 3.25% this year and fall again in 2023 before beginning to recover, the Bank cautioned.
The Bank said further rate hikes will likely be needed to curb inflation.
It said: “The UK economy had recently been subject to a succession of very large shocks and disturbances. Russia’s invasion of Ukraine was another such shock.”
Rising costs will hammer household and business finances, but the Bank said “this was something monetary policy was unable to prevent.”
Most of the Bank’s policymakers believe “some degree of further tightening in monetary policy might still be appropriate in the coming months.”
Source: news.upday.com | Zoe Bell