The Bank of England (BOE) has raised interest rates to 3 percent from 2.25 percent; it is the biggest rate increase since 1989, but the BOE has pushed back against expectations for further steep hikes, saying that the UK faces a painful and long recession.
The pound dropped below 1.12 dollars after the decision as the central bank of the UK said it might increase interest rates again due to a very challenging economic outlook. BOE forecasts that inflation will hit a record 40-year high of around 11 percent during the ongoing quarter, but BOE also believes the UK economy has already entered a recession, which could last around two years.
Current rise in borrowing costs, which is the biggest in 33 years apart from a failed attempt to provide support to the pound. Two policymakers have voted for smaller increases of a quarter, as the UK economy was probably in recession. But the majority of the Monetary Policy Committee said the rates will need to increase even higher, and a further increase in the bank rates might be required for a sustainable return of inflation to target, said the BOE.
Central banks across the western world are responding to similar challenges, and inflation has hiked over the past year because of residual labour shortages since the COVID-19 pandemic.
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