Bank of England hikes interest rates to 4% in tenth hike in a row
Interest rates have gone up meaning mortgages will cost more, but the Bank of England has said there is a glimmer of hope for the future. ITV News Political Reporter Amy Lewis and Economics Editor Joel Hills have the details.
The Bank of England has once again pushed up interest rates, in the tenth hike in a row.
Seven members of the Bank of England’s Monetary Policy Committee (MPC) voted to increase the base interest rate from 3.5% to 4%, with two voting to keep it unchanged.
The MPC also softened its language, removing a promise to act “forcefully” to return inflation to its target level.
“Looking further ahead, the MPC would adjust the Bank rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit,” the minutes of the meeting said.
The decision comes after Bank governor Andrew Bailey provided some optimism for the future of the UK economy as he insisted the country has turned a corner on rising inflation.
He said earlier this month that while Britain still faces a recession, it could be “shallower” than previously expected, indicating a less severe downturn.
Mr Bailey told ITV News Business and Economics Editor Joel Hills: "I see the signs that we are beginning to turn a corner".
"Energy prices, which have obviously been one of the big forces pushing inflation up, have come off substantially and that is good, very good."
On Tuesday, the International Monetary Fund (IMF) predicted the UK will be the only major economy to plunge into recession this year, with the economy set to contract by 0.3%.
Chancellor Jeremy Hunt acknowledged the grim forecast but insisted the UK’s long-term prospects for growth are more promising.
It means the Bank could upgrade its outlook for the economy on Thursday from the current forecast of a recession lasting eight quarters – which would be the longest since reliable records began in the 1920s.
The length and extent of the contraction could be shortened in the Bank’s estimations.
The Bank has been raising rates successively for more than a year.
In December 2021 the base rate stood at just 0.1% as policymakers tried to encourage consumer spending after Covid slowed the economy.
Efforts to control inflation and bring it back down to the Bank’s 2% target has led the Bank to tighten monetary policy since then.
However, the UK’s consumer prices index (CPI) inflation rate slipped slightly to 10.5% in December, down from 10.7% in November and 11.1% in October, suggesting the measure has now passed its peak.
Deutsche Bank suggested Thursday would mark the MPC’s final “forceful” hike in the tightening cycle with a 0.5 percentage point increase.
Societe Generale Global Economics suggested the same, but said it expects another 0.5 percentage point hike in March before coming back down.
The SocGen economists said: “Even though the outlook is less gloomy than expected only three months ago, we still think a recession is likely and the MPC’s forecasts should continue to predict one for this year.
“This, and the mounting evidence of some cooling in the labour market, vacancies and job growth in particular, should lead the committee to contemplate an imminent end to tightening.”
Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know
Meanwhile, the Bank of England deputy governor Ben Broadbent said it was still not clear whether the effects of EU withdrawal were a reason why the UK is forecast to do worse than other major economies this year.
Speaking at a press conference, Mr Broadbent, the deputy governor for monetary policy, said they had not changed their overall assessment of the economic impact of Brexit.
He acknowledged, however, that they had not expected to see the effect on growth figures to come through quite so quickly.
“Brexit … has been something that has pulled on our potential output in our country and that’s been our assessment for many years,” he said.
“We’ve not changed our estimate of the long-running effects, but we’ve brought some of them forward and we think they’re probably coming in faster than we first expected.”
He added: “Yes it (Brexit) is having some effect on growth, although ultimately no bigger effect than we assessed some years ago.
“Based on the numbers for trade and some degree for the numbers on investment, we think these effects are coming through faster than initially envisaged.”
Overall, the Bank said that while it believed the UK was still heading for a recession, the downturn may be shorter and shallower than previously expected.
For Labour, shadow chancellor Rachel Reeves said the latest figures showed the UK needed to build bridges with Brussels.
“We want a stronger, more productive relationship with our nearest neighbours and trading partners,” she said.
It was one of the biggest news stories of our time - and it's still not over. So what did Boris Johnson know about Downing Street’s notorious parties? With fresh revelations from our Number 10 sources, in their own words, listen to the inside story...