British Interest Rates Up Again By Half A Percentage Point

British Interest Rates Up Again By Half A Percentage Point

The Bank of England (BoE) has again raised the key interest rate in the United Kingdom by half a percentage point. With this, the central bank wants to combat inflation, which is still around the highest level in forty years despite the previous interest rate hikes.

By raising interest rates, borrowing money becomes more expensive, and less money is available, which should depress prices.

The British central bank was one of the first central banks to raise interest rates in December 2021 and has now raised them ten times in a row to a level of 4 percent. That is the highest rate since 2008. However, the interest rate step of 0.5 percentage points was in line with economists’ expectations.

Central bank policymakers were not unanimous on the interest rate decision. Seven of the nine board members voted for an interest rate increase of 0.5 percentage points, and two voted against a further increase in interest rates. However, the BoE also stated that more rate hikes would likely be needed if inflation remains high. The central bank aims for an inflation rate of 2 percent.

Although UK inflation fell slightly to 10.5 percent in December from 10.7 percent in November, prices are still rising sharply, and many households in the country are being hit hard by the higher cost of living. The strong price rises are also causing social unrest. For example, there are many strikes in the United Kingdom in various sectors to force higher wages.

Central bankers believe the UK economy is already in recession, but the economic downturn will be shorter than feared in November. The BoE now forecasts a decline in the gross domestic product (GDP) of nearly 1 percent over the next five quarters. Previously, GDP was expected to fall by 2.9 percent over the next eight quarters. However, according to the central bank, the British economy will not recover to pre-coronavirus levels until 2026, and 500,000 jobs will be lost in the meantime.

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