
Bank of England’s surprise rate hike spurs U.K. recession fears
Global News
The size of the Bank of England's 13th hike in a row was somewhat of a surprise, with most economists predicting a smaller quarter-point increase.
Fears that the British economy is heading for recession mounted sharply Thursday after the Bank of England raised borrowing costs by more than anticipated, seeking to combat stubbornly high inflation with a hike that will hit borrowers hard, particularly homeowners who have to refinance in the coming months.
On a busy day for central bank action in Europe, the Bank of England said its nine-member Monetary Policy Committee decided to lift its main interest rate by half a percentage point to a fresh 15-year high of 5%. All but two of the panel backed the half-point increase.
The size of the bank’s 13th hike in a row was somewhat of a surprise, with most economists predicting a smaller quarter-point increase.
Bank Gov. Andrew Bailey warned of further increases if inflation fails to show clear signs of heading down.
“We are committed to returning inflation to the two per cent target and will make the decisions necessary to achieve that,” he said.
Clearly, rate-setters have been spooked by the failure of inflation in the U.K. to ease as fast as predicted. Inflation has proven stickier than in other major economies, with many blaming the bank for being too slow to start raising borrowing rates and Britain’s departure from the European Union, which has added to import costs.
Figures on Wednesday showed U.K. inflation unexpectedly holding steady at 8.7%, fueling concerns over the outlook for prices after predictions for a modest decline to 8.4%.
With wages rising fast, it’s increasingly clear that high inflation has become embedded in the economy.