Bank of England Raises Key Rate by 75bps; Sees GDP Shrinking Through 1H 2024

The Bank of England raised its key Bank rate by 75 basis points to 3.0%, its highest in 14 years, but warned that the U.K. economy is likely to shrink for the next year and a half as the regional energy crisis aggravates home-grown problems.

The Bank said it expects the economy to contract by 0.75% in the second half of this year, a little less than it had feared in its earlier projections. The improvement reflects the government’s intervention to hold down energy prices for consumers and businesses over the next six months.

The Bank also said it expects inflation, which hit 10.1% in September, to start falling early in 2023 as previous price hikes fall out of annual comparisons, and to be below its 2% target by the end of 2024.

Two of the Bank’s 9-strong Monetary Policy Committee voted for a smaller increase.

The pound dipped, then steadied on the news to trade at $1.1233 by 08:10 ET (12:10 GMT), down 1.4% on the day.