The Bank of England is expected to raise interest rates by the most since 1995 on Thursday, even as the risk of a recession mounts, in an attempt to prevent high inflation from becoming part of the economy. British economy.
Most investors and economists expect the Bank of England to raise its key interest rate by half a percentage point to 1.75%, the highest level since late 2008 at the start of the global financial crisis, when it announces its decision at 1100 GMT.
The core inflation rate in Britain rose to 9.4%, and may reach 15% in early 2023, according to the Resolution Foundation, as the repercussions of the Russian invasion of Ukraine combine with post-pandemic pressures on the global economy.
In June, the Bank of England, which has already raised borrowing costs five times since December, said it would act aggressively if inflation pressures became more persistent.
Since then, inflation expectations among the public have eased slightly and corporate pricing plans have moderated, which might give the MPC a case to commit to a quarter-point rate move.
But the pressure on Bank Governor Andrew Bailey and his colleagues intensified following the large interest rate increases approved by the US Federal Reserve, the European Central Bank and other central banks, which weakened the value of the pound, which might exacerbate inflation.
“We know they are concerned regarding sterling, and in this context they don’t want to be the outsider by not joining the club of 50 basis points,” ING economist James Smith said.
A Archyde.com poll published on Monday showed that more than 70% of 65 economists expect an increase of half a percentage point.
In its latest forecast in May, the Bank of England said it expected almost no growth for the British economy before 2025 at the earliest.