UK in recession, says Bank of England as it raises interest rates to 2.25%
Britain’s economy is now in recession, the Bank of England has warned, as it raised interest rates to tackle the worst bout of inflation for 40 years.
A majority of the Bank’s nine-member monetary policy committee (MPC) voted to increase the key base rate by 0.5 percentage points to 2.25% – its highest level since 2008 – judging that the risks of inflationary pressures becoming entrenched outweighed the short-term dangers to the economy.
With soaring energy bills and the rising cost of a weekly shop forcing households to rein in their spending, Threadneedle Street said the economy was heading for a second consecutive quarter of falling output in the three months to the end of September.
After a 0.1% drop in GDP in the three months to June as the economy slumped into reverse, the Bank said a further 0.1% decline could now be expected in the third quarter amid a slump in consumer spending and weaker activity for manufacturing and construction.
It said the fall also reflected a smaller-than-expected bounce back from the additional bank holiday for the Queen’s platinum jubilee, as well as the impact from businesses closing their doors in a mark of respect for the state funeral this week.
Three members of the MPC voted for a 0.75 percentage point increase, in a three-way split on the rate-setting panel with the majority voting for a half-point rise and one member pushing for a more limited 0.25 percentage point move.
The City had been braced for at least a half-point increase, with financial markets betting on a 0.75 percentage point rise to match the sharp increase from the Federal Reserve on Wednesday as the US central bank pushes to squeeze inflation out of the world’s largest economy.
Three members of the MPC – Dave Ramsden, one
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