BoE hikes interest rates to 4%, but suggests shallower recession06/02/2023
The Bank of England has announced its decision to raise borrowing prices for the tenth time in a row. But it is also predicting that the impending UK recession will be milder and shorter than originally anticipated.
The Monetary Policy Committee (MPC) of the Bank of England, which determines monetary policy to achieve inflation in-line with its 2% target, announced on February 2, 2023 its decision to raise UK interest rates from 3.5% to 4.0%.
This is the second month in a row where the MPC has hiked by 50 basis points, and UK interest rates have reached their highest level since October 2008 as a result. The MPC voted 7-2 to raise interest rates to 4%, with two members (Swati Dhingra and Silvana Tenreyro) voting against it, preferring to keep the Bank Rate at 3.5%. The next interest rate announcement is scheduled on March 23, 2023.
“Another substantial hike in interest rates will come as a painful blow to people and companies already struggling under myriad soaring cost pressures, with borrowers particularly affected,” Suren Thiru, Economies Director for ICAEW, said.
“The aggressive rate rises over the past year will increasingly drag on our economic prospects in 2023 as they filter into the broader economy, stifling activity and weakening confidence.”
The Bank of England also issued its quarterly Monetary Policy Report, which updates the bank’s prognosis for the UK economy. According to the central bank’s most recent predictions, the UK will enter a recession this year, although it will be shorter and shallower than previously believed.
As energy prices decrease and inflation falls, the slowdown is likely to endure just over a year rather than nearly two. The Bank anticipates that inflation will return to 8% in June before falling to around 3% at the start of next year. It did, however, caution that the rate of wage increases might lead to a slower reduction in inflation.
If you have any concerns on how the rate increases will effect you and your business please do not hesitate to call JW Hinks on 0121 456 0190 to find out how our experienced team of specialist accountants and business advisors can help.