The Bank of England has announced the largest interest rise in 30 years and warns that the UK is already in recession
The Bank of England has announced the largest interest rise since Black Wednesday in 1992, raising rates by 75 basis points to 3pc.
The Monetary Policy Committee, which convenes eight times a year to set interest rates for the country, warned that the UK faces a “very challenging outlook“.
Their forecast suggested that the country is already in recession, and that GDP will fall for eight straight quarters (or two years) until mid-2024.
How will the largest interest rise affect mortgage rates?
Governor of the Bank of England Andrew Bailey, speaking shortly after the interest rise was announced, said that mortgage rates should reflect the new interest rates, indicating some eventual relief for borrowers.
He was however unwilling to predict future mortgage rates and admitted it was unfortunate that many buyers had been forced to take out unusually high cost mortgages.
Bailey defended the rates rise as a necessary action
Bailey emphasised that “If we do not act forcefully now, it will be worse later on.”
He added that there was “a tough road ahead”, pointing to the energy crisis following a sharp rise in energy prices as a result of Russia’s invasion of Ukraine.
The updated projected recession would be the longest since records began
In previous statements the Bank estimated the UK would hit a recession at the end of 2022 for at least a year.
The revised projections now identify the “challenging” downturn of the summer as the start of the new recession, which will continue throuhgout 2023 and into the first half of 2024.
This would be the longest recorded recession since the records began in the 1920s, according to the Bank.
Chancellor Jeremy Hunt responded to the largest interest rise in 30 years:
“Inflation is the enemy and is weighing heavily on families, pensioners and businesses across the country. That is why this government’s number one priority is to grip inflation, and today the Bank has taken action in line with their objective to return inflation to target.
“Interest rates are rising across the world as countries manage rising prices largely driven by the Covid-19 pandemic and Putin’s invasion of Ukraine.
“The most important thing the British government can do right now is to restore stability, sort out our public finances, and get debt falling so that interest rate rises are kept as low as possible.
“Sound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth. However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.”
