UK interest rates continued their rise in September as the Bank of England increased the key base rate from 1.75% to 2.25% to reach its highest level since 2008.
- UK base rate was raised by 50 basis points
- The BoE expects CPI to peak at just under 11% in October
- Further rate increases are on the cards
UK interest rates continued their rise in September as the Bank of England (BoE) increased the key base rate from 1.75% to 2.25% to reach its highest level since 2008. Central bank policymakers voted by five to four in favour of the 0.5 percentage point rise, with three members of the Monetary Policy Committee (MPC) calling for a steeper increase of 0.75 percentage points, and one voting for an increase of 0.25 percentage points.
“The BoE believes that the UK economy is already in recession”;
UK consumer price inflation eased from 10.1% year on year in July to 9.9% in August, but is expected to resume its rise, driven primarily by “domestically generated inflation”. Following the Government’s announcement of the Energy Price Guarantee, the BoE now expects inflation to peak at just under 11%, compared with earlier forecasts of 13%.
The rate increase was widely expected; nevertheless, the British Chamber of Commerce (BCC) warned that the BoE faces “an increasingly tricky balancing act” as higher rates risk dampening consumer confidence.
This was the MPC’s seventh consecutive rate increase and, looking ahead, officials remain ready to continue their tightening action. In a statement, the MPC said: “Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully, as necessary”. The BoE believes that the UK economy is already in recession: the economy contracted by 0.1% during the second quarter, and is believed to have shrunk by a further 0.1% during the third quarter.
