Bank of England raises interest rates amid warnings of recession and 10% inflation

The government is facing calls to launch a fresh package of emergency financial support for households after the Bank of England warned Britain’s economy could plunge into recession before the end of the year.

As the nation went to the polls in the local elections, the Bank raised interest rates from 0.75% to 1% to tackle spiralling inflation made worse by Russia’s war in Ukraine. With a fresh jump in home energy bills expected in October, it forecast inflation would rise above 10% this year, the highest level since 1982.

The rate rise brings borrowing costs to levels unseen since the recession caused by the 2008 financial crisis, but the Bank’s monetary policy committee (MPC) said action was warranted despite the gathering economic storm clouds.

Andrew Bailey, the Bank’s governor, said there was a “narrow path” the central bank had to navigate between the dual risks of inflation and recession facing the British economy. He said the inflation shock had been made worse by the impact on supply chains from Covid lockdowns in China and the rise in energy costs since Vladimir Putin’s invasion.

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