BOE Makes Historic Rate Hike as UK Faces Long and Painful Recession


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.

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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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