Warning of long recession as Bank votes for biggest jump in interest rates for 30 years

The Bank of England has announced the biggest hike in interest rates since 1992 and warned the UK faces a long recession.

Its Monetary Policy Committee voted 7-2 to raise the rate by 0.75 percentage points, taking it up to 3% – the highest level seen since the end of 2008.

It said that further increases in interest rates “may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets”.

The UK economy is expected to have shrunk by 0.5% in the third quarter and forecast to fall by 0.3% in the final quarter of 2022, the Bank said. It is now predicting the UK economy will “remain in recession throughout 2023 and 2024 H1, and GDP is expected to recover only gradually thereafter”.

The two MPC members in the minority voted for a 0.25 and 0.5 percentage point increase.

In a statement, the Bank said: “What will happen to interest rates will depend on what happens in the economy.

“At the moment, we expect inflation to fall sharply from the middle of next year.”

Rates have been rising since December, when they were just 0.1%, as the Bank attempts to ward off rising inflation. The rise comes ahead of the much-anticipated Autumn Statement later this month.

The MPC said: “GDP is expected to decline by around 0.75% during 2022 H2, in part reflecting the squeeze on real incomes from higher global energy and tradable goods prices. The fall in activity around the end of this year is expected to be less marked than in August, however, reflecting support from the Energy Price Guarantee. The labour market remains tight, although there are signs that labour demand has begun to ease.”

We’ve put up interest rates to help return inflation to our 2% target. Raising interest rates is the best way we have to bring inflation down. https://t.co/VWyskLufPC #MonetaryPolicyReport #BankRate pic.twitter.com/u04l5b2vj7

— Bank of England (@bankofengland) November 3, 2022

In 1992, before the Bank of England became independent, the Government raised interest rates by two percentage points, to 12%, on what became known as Black Wednesday.