Cost of borrowing up to highest level since 2008 as interest rate hiked to 3%

The cost of borrowing is to rise significantly after the Bank of England Monetary Policy Committee (MPC) voted to raise its interest rate to three per cent – the highest rate in nearly 15 years.
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At its meeting ending on November 2, 2022, the MPC voted by a majority of 7-2 to increase its Bank Rate by 0.75 percentage points, to 3 per cent.

The bank announced the hike as it continues to struggle to curb inflation which is running at over 10 per cent.

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"Consumer Price Index (CPI) inflation was 10.1 per cent in September and is projected to pick up to around 11 per cent in 2022 Q4, lower than was expected in August, reflecting the impact of the Energy Price Guarantee (EPG),” the Bank of England stated.

Interest rates are to rise to 3 per cent.Interest rates are to rise to 3 per cent.
Interest rates are to rise to 3 per cent.

The British central bank’s aim is to keep inflation at around two per cent.

BoE said that while the British government’s EPG is likely to place downward pressure on energy inflation other fiscal interventions announced by Downing Street since the summer may actually drive inflation upwards.

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"For the current November forecast, and consistent with the Government’s announcements on 17 October, the MPC’s working assumption is that some fiscal support continues beyond the current six-month period of the EPG, generating a stylised path for household energy prices over the next two years.

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"Such support would mechanically limit further increases in the energy component of CPI inflation significantly, and reduce its volatility. However, in boosting aggregate private demand relative to the August projections, the support could augment inflationary pressures in non-energy goods and services.

“Other fiscal measures announced up to and including October 17 also support demand relative to the August projection,” the Bank said.

The MPC’s latest projections are for ‘a very challenging outlook for the UK economy’, the Bank said, adding ‘it was expected to be in recession for a prolonged period and CPI inflation would remain elevated at over 10% in the near term’.

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The Bank said the global economic outlook influenced the situation in the United Kingdom.

"Global inflation remained elevated, driven by higher energy prices and tight labour markets, but supply-chain bottlenecks had eased somewhat,” it said.