BoE raises interest rates to 3%

The Bank of England (BoE) has raised the base rate of interest to 3%, an increase of 0.75%, as it warned that the UK is set to face its longest recession since records began.

At its meeting ending on 2 November 2022, the Bank’s MPC voted by a majority of 7-2 to increase Bank Rate by 0.75 percentage points.

In the MPC’s November central projection that is conditioned on the elevated path of market interest rates, GDP is projected to continue to fall throughout 2023 and 2024 H1, as high energy prices and materially tighter financial conditions weigh on spending.

In total, while the BoE predicts the recession to be less severe than the financial crash of 2008 and in the 1980s, it is set to last over eight quarters until the middle of 2024.

This means that the UK economy is to remain below its 2022 levels until the end of 2025.

During this period it said it forecasts unemployment to hit around 6.5% and the current levels of high inflation – sitting at 10.1% in September – to begin to decline at pace halfway through 2023.

The BoE said: “ The majority of the Committee judges that, should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets.

“There are, however, considerable uncertainties around the outlook. The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary.”