The Bank of England has lifted interest rates to a 14-year high of 3.5% in a split decision announced yesterday (15 December).

The monetary policy committee voted by a majority of 6-3 to increase the rate by half a percentage point, with 3.5% being the highest rate since October 2008. The rate rise means borrowing costs have been increased at nine meetings in a row, beginning with a rise from 0.1% to 0.25% in December 2021.

While the Bank expects the UK to fall into recession this quarter, they now expect a smaller contraction of the economy, with GDP forecast to decline by 0.1% in Q4 2022 – 0.2ppts stronger than expected in November.

The economy shrank by 0.2% in Q3 this year.

The Bank also said “most housing market indicators have continued to soften” and that “surveys of investment intentions have also weakened further.”

The minutes of the MPC meeting further say: “The majority of the Committee judges that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target.

There are considerable uncertainties around the outlook. The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary.”

The MPC will make its next announcement on interest rates following a meeting on 2 February 2023.

Meanwhile, Bank of England governer Andrew Bailey said inflation had now passed its peak in the UK.

Bailey hailed the “first glimmer” of hope that the highest inflation in decades is coming under control. 

However European and American central bankers who have warned of further aggressive action to tackle rising prices.