Bank Of England Hikes Interest Rates To 1.75%, Biggest Rise In 27 Years

The Bank of England on Thursday hiked interest rates 50 basis points to 1.75%, the biggest rise in 27 years, as the UK faces the highest level of inflation in 40 years.

The UK inflation was 9.4% in June, with the British central bank projecting it to hit over 13% before the end of 2022.

"Inflationary pressures in the UK and the rest of Europe have intensified significantly since the May monetary policy report," the bank said, adding it largely reflects a near doubling in wholesale gas prices since May due Russia's curb of gas supplies to Europe.

The gross domestic product growth in the UK is slowing, the Bank of England said, and rising gas prices has caused "another significant deterioration in the outlook for activity in the country."

The bank expected the UK to enter a recession from the fourth quarter of 2022.

"Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative," it underlined, adding domestic inflationary pressures are projected to remain strong over the first half of the forecast period.

Poorest to be hit hardest if inflation not return to target: Governor

Following the rate decision, Bank of England Governor Andrew Bailey said "all options are on the table" for the upcoming meetings, stressing that there are "no ifs or buts" about the goal of reducing inflation to 2%.

"I recognise … how difficult the cost of living challenge will continue to be for many people in the UK," he said, adding the poorest will be hit hardest unless inflation does return to target.

The bank also said unemployment will rise from 2023 and risks around the projections from both external and domestic factors are exceptionally large at present.

"There is a range of plausible paths for the economy, which have CPI inflation and medium-term activity significantly higher or lower than in the baseline projections in the August monetary policy report," it added. -