Bank of England raises rates to 1% despite recession risk

LONDON – The Bank of England raised interest rates to their highest since 2009 on Thursday, hiking by a quarter-point to 1% to counter inflation now heading above 10%, even as it sent a warning that Britain risks falling into recession.

REACTION:

SURENTHIRU, HEAD OF ECONOMICS, BRITISHCHAMBERS OF COMMERCE

“The decision to raise interest rates will cause considerable alarm among households and businesses given the rapidly deteriorating economic outlook and mounting cost pressures many are facing.”

VIVEKPAUL, UK CHIEFINVESTMENTSTRATEGIST, BLACKROCKINVESTMENTINSTITUTE

“Given the weakness of the economic outlook, we expect the Bank will ultimately choose to live with some inflation. We estimate the UK’s neutral rate of interest to be lower than other key regions, such as the U.S., which would mean it would have less headroom for hikes than is typically assumed.”

“As such, we see market expectations for further UK tightening as overdone, and expect UK yields will rise more slowly than U.S. equivalents.”

KARENWARD. CHIEFMARKETSTRATEGISTEMEA AT JPMORGAN

“In my view, the combination of the pandemic and Brexit has changed the fundamentals of the UK economy – particularly its ability to generate persistent inflation. The Bank will have to keep raising rates to bring inflation down, but a gradual approach, as taken today, is understandable given the nature of the current risks.”