Read key considerations from CBI experts on rising interest rates and the Bank of England’s predicted recession at the end of this year.
The Bank of England (BoE) raised interest rates by 50 basis points last week, to 1.75% – this marked the biggest rise in rates in 27 years, and follows in the footsteps of other central banks implementing outsized rate rises in a bid to tackle inflation. Most notably, the US Federal Reserve has now raised interest rates by 75 basis points twice in a row.
The Bank of England also warned that the economy would enter a recession at the end of this year – read CBI economic analysis to navigate doing business during the oncoming downturn.
The Bank of England predicts a recession, lasting for over a year.
Click though the topics for key analysis on the months ahead.
Why did the Bank of England raise interest rates again?
The vote for a 50bp rise was almost unanimous. Only one member of the Monetary Policy Committee (Silvana Tenreyro) favoured a smaller rate rise (25 basis points), but acknowledged that a bigger move could be justified too – supported by the worrying forecast from the Monetary Policy Committee (MPC) for much higher inflation.
The CPI rate is forecast to peak at an eye-watering 13% at the end of this year – primarily due to a near-doubling of wholesale gas prices since the last forecast in May.
Against this backdrop, the Committee noted that inflationary pressures were becoming more persistent and broadening to more domestically-driven sectors: with a tight labour market and pricing power still reasonably strong, there’s a risk that, despite falling global price pressures, these aren’t enough to bring inflation expectations down.
The Bank actually expect higher inflation to tip the economy into a recession at the end of this year, which persists over 2023. The total fall in output is comparable to that se
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