The central bank had earlier forecast that the economy would grow in the current fiscal quarter, but now believes that gross domestic product (GDP) will fall by 0.1 percent.
This comes after GDP was reported to have contracted by 0.2% in the second quarter and would mean the economy is currently in recession.
A technical recession occurs when the economy shrinks for two consecutive quarters.
gave Bank’s Monetary Policy Committee (MPC) Decided to cut rates to 2.25% – the highest since November 2008 – from 1.75%, in an effort to cope with a big rise in the cost of living.
In the committee’s minutes, it said that “hard work with wage growth and domestic inflation” above targets called for a “tremendous response”.
Even so, the increase was below the expectations of financial markets, which had forecast a 0.75 percentage point increase in line with the rate hike announced by the US Federal Reserve on Wednesday.
The MPC’s decision came after five members of the nine-strong board voted in favor of a 0.5 percentage point increase, including the bank’s governor Andrew Bailey.
Three members – Jonathan Haskell, Catherine Mann and Dave Ramsden – voted in favor of a 0.75 percentage point increase, while member Swati Dhingra called for a 0.25 percentage point increase.
The decision to increase rates is an attempt to keep inflation under control. This is one of the best tools the Bank of England has to keep inflation – currently at 9.9% – back to its 2% target.
At the September meeting, the MPC also said inflation was no longer as high as previously expected after the government announced plans to freeze household energy prices earlier this month.
Consumer Price Index (CPI) inflation now peaks at “just under 11%” in October. This would mark the highest rate of inflation in the UK since January 1982.
At its last meeting in August, the Bank of England warned that inflation was likely to reach 13.3 percent and that the country would witness five consecutive quarters of recession.
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