Aug 4, 2022 - Economy

U.K. central bank announces biggest interest hike in nearly 30 years

Tourists outside the Bank of England on Thursday. Photo: Hollie Adams/Bloomberg via Getty Images

The Bank of England enacted the steepest interest rate hike since 1995 on Thursday, lifting borrowing costs by half a percentage point.

Why it matters: It's the latest central bank to move aggressively to lift interest rates in response to soaring costs across the globe. But in perhaps the most dire forecast yet from a major central bank, the Bank of England warned the U.K. could fall into a deep and protracted recession, while inflation could hit 13% by year-end.

  • In June, inflation rose 9.4% from the prior year in the U.K. — the highest in four decades.
  • Because of the latest surge in gas prices, the Bank of England said inflation is likely to peak at 13% — higher than its 11% forecast in May — and "remain at very elevated levels throughout much of 2023" before falling closer to its 2% inflation target in the years ahead.

The bottom line: The U.K. is facing intensified inflation pressure and an energy crisis as Russia curtails natural gas supplies to Europe. The Bank of England is taking its most aggressive step yet to cool price growth, even as the U.K. stares down a possible recession.

  • But the central bank did suggest its policies were not on a "preset path," leaving the door open for future policy moves.
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