The Bank of England (BoE) has increased interest rates by 75 basis points, as expected, taking the Bank Rate from 2.25% to 3%, the highest since autumn 2008.
BoE policymakers voted to lift borrowing costs, for the 8th time in a row, in an attempt to cool surging inflation and to prevent it becoming embedded in the economy.
It is the largest rate hike since 1989 – apart from the almost immediately reversed rise on Black Wednesday in 1992 - and will hit mortgage payers on variable rate loans and push up the cost of business loans and other credit.
At its meeting ending on 2 November 2022, the Bank’s Monetary Policy Committee (MPC) voted by a majority of 7–2 to raise rates by 75bp with one member preferring a 50bp rise and one just a 25bp increase.
The Bank said: “Inflation is too high. It is well above our 2% target.”
“If high inflation continues, it will hurt everybody. Low and stable inflation helps people plan for the future.”
“Raising interest rates is the best way we have to bring inflation down.”
But it did suggest rates may not increase as far as some in the market expect.
"The majority of the Committee judges that, should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets."
"There are, however, considerable uncertainties around the outlook. The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary."
In the accompanying statement, the BoE forecast GDP would fall by around 0.75% during the second half of 2022 and that GDP would continue to fall throughout 2023 and the first half of 2024, as high energy prices and materially tighter financial conditions weigh on spending.
The labour market remains tight, although there are signs that labour demand has begun to ease, the statement added.
Indeed, the BoE estimated unemployment would rise to 6.5%.
The Bank forecast CPI inflation would hit 11% in the fourth quarter, lower than was expected in August, reflecting the impact of the Energy Price Guarantee (EPG).