In their first meeting since the short and turbulent premiership of Liz Truss came to an abrupt end two weeks ago, the Bank of England’s policymakers raised interest rates on Thursday by the largest amount since 1989.
The central bank lifted its key policy rate by three-quarters of a point, ramping up its effort to tighten financial conditions and taking the rate to 3 percent, the highest since November 2008. The bank intensified its battle against inflation even as it predicted that the British economy would enter a recession for a “prolonged period.”
Through all the tumult in Britain the past few months, high inflation, as well as the threat of it lingering for longer than expected, has remained a consistent scourge for the central bank. The annual inflation rate topped 10 percent in September, the highest in four decades and five times the central bank’s target.
The Bank of England expects inflation to climb to about 11 percent this year, which is less than it had previously forecast because of a government plan to freeze household energy bills. While the freeze is holding down the headline inflation rate, it could add to price pressures coming from other goods and services, as households have to spend less on their energy bills, the bank said.
The bank’s latest projections “described a very challenging outlook for the U.K. economy,” policymakers said, according to the minutes of their meeting this week. “It was expected to be in recession for a prolonged period” and the inflation rate would be above 10 percent in the near term, they added.
Bank officials have said they are determined to bring inflation down to its 2 percent target and will use higher interest rates to do so.