The Bank of England raised its key base rate by 75 basis points in November, representing its largest single rate increase over 30 years and taking base rate to 3% – its highest level since before the Global Financial Crisis began in 2008.
- Base rate was raised by 75bp to 3%
- The unemployment rate is set almost to double
- CPI is expected to peak at around 11% this year
The Bank of England (BoE) raised its key base rate by 75 basis points in November, representing its largest single rate increase over 30 years and taking base rate to 3% – its highest level since before the Global Financial Crisis began in 2008.
“BoE officials believe that the UK has already slipped into a recession that could last until mid-2024”
The members of the Monetary Policy Committee (MPC) voted by seven to two in favour of the 75 basis point rise, with two members voting for smaller increases of 50 and 25 basis points respectively. Further rate increases are widely expected.
Warning of a “very challenging” economic backdrop, BoE officials believe that the UK has already slipped into a recession that could last until mid-2024, while the rate of unemployment is set almost to double to just under 6.5%. Inflation has continued to run well ahead of the BoE’s 2% target; consumer price inflation reached 10.1% during September, and the BoE expects it to peak at around 11% this year before starting to ease in 2023.
Responses to the rate increase were mixed. The Institute of Directors described the MPC’s decision as “the least-worst option”, but urged the BoE to “be careful not to overshoot in its response, risking a longer fall in demand than is necessary”. In comparison, the British Chambers of Commerce commented: “Raising the interest rate is a very blunt instrument to control inflation that is largely the result of global factors … this is further bad news for businesses”.
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