The Bank of England raised interest rates to their highest since 2009 on Thursday (May 5), hiking by a quarter-point to 1% to counter inflation now heading above 10%, even as it sent a warning that Britain risks falling into recession.

“The point being is we are walking this very narrow path now,” BoE governor Andrew Bailey said at a news conference. “The proximate reason for raising bank rate at this point is, it’s not only the current profile of inflation, what is to come and of course what that could mean for inflation expectations to come, but the risks as well.”

The BoE’s nine rate-setters voted 6-3 for the rise from 0.75%, with Catherine Mann, Jonathan Haskel and Michael Saunders calling for a bigger increase, to 1.25%, to stamp out the risk of the inflation surge getting embedded in the economy.

The pound fell by around a cent against the U.S. dollar to just under $1.245. British government bond yields jumped briefly but soon fell to a day’s low as investors digested the BoE’s policy statement.

Central banks are scrambling to cope with a surge in inflation that they described as transitory when it began with the post-COVID reopening of the global economy, before Russia’s invasion of Ukraine sent energy prices spiralling.

The BoE said it was also worried about the impact of China’s pandemic lockdown policies, which threaten to hit supply chains again and add to inflation pressures.

The BoE said inflation in Britain would peak later than in other big advanced economies due to Britain’s cap on household energy tariffs, which saw bills jump 54% in April and which the BoE thinks will rise a further 40% in October.

Real post-tax household disposable income – a measure of living standards – is forecast to fall 1.75% this year, the biggest calendar-year drop since 2011 and the second-biggest since the BoE’s records began in the 1960s.

Watch on TV: Freeview 236, Sky 515, Virgin 626
Listen on DAB+ Radio

Download the GB News App to watch live wherever you are, catch up with all our shows and get the latest news from the GBN family. https://www.gbnews.uk/freegbapp

Don’t forget to follow us on social media too!

Twitter: https://twitter.com/GBNEWS
Facebook: https://www.facebook.com/GBNewsOnline
Instagram: https://www.instagram.com/gbnewsonline/
LinkedIn: https://www.linkedin.com/company/gb-news/
TikTok: https://www.tiktok.com/@gbnews

Click here for the latest Covid-19 guidance from the World Health Organisation ► https://www.who.int/emergencies/diseases/novel-coronavirus-2019/advice-for-public

Click here for the latest NHS information on COVID-19 vaccines
https://www.nhs.uk/conditions/coronavirus-covid-19/coronavirus-vaccination/coronavirus-vaccine/

source