The Bank of England has raised interest rates for a sixth consecutive time, warning that the UK is on course for a recession lasting more than a year with inflation above 13%.
The bank said it had no choice but to increase borrowing costs by 0.5 percentage points to 1.75%, as the fallout from the Russian invasion of Ukraine continues to fuel inflation. The UK is facing a cost of living crisis unlike any in recent memory, with figures projecting a 5% drop in living standards over the next two years – the largest drop since records began in the 1960s.
Bank of England Governor Andrew Bailey predicted that the UK was on course for a period of “stagflation” – recession combined with soaring inflation. The governor was clear where the blame for the situation lay, stating that there was an “economic cost to the war”.
Bailey accepted that the latest rate hike would add further pressure to households, but said it was necessary to prevent price increases from becoming entrenched.
“If we don’t act now to prevent inflation becoming persistent, the consequences later will be worse, and will require larger increases in interest rates,” he said. “Returning inflation to its 2% target remains our absolute priority, no ifs, no buts.”
Hinting at the likelihood of further interest rate hikes, the Bank’s monetary policy committee said it would be “particularly alert to indications of more persistent price pressures, and will if necessary act forcefully in response”.