The Bank of England implemented the largest interest rate raise in 13 years at one percent. This has been seen as the strongest signal yet that Britain is facing an economic recession and the possibility of an annual inflation rate of 10 percent, the highest in over 40 years. Economists are now making dire predictions on growth and unemployment.
Speaking to The Times, the governor of the Bank of England, Andrew Bailey said: “I recognise the hardship this will cause for many people in the UK, particularly those on the lowest incomes often with little or no savings, who are hit hardest by increases in the prices of basic necessities like food and energy.
“The economy has recently been subjected to a succession of very large shocks.
“Russia’s invasion of Ukraine is another such shock.”
The surging rate of inflation has been caused by Bank of England quantitative easing amid the coronavirus pandemic which was used to lend the Government money to support the furlough scheme.
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Other factors in causing the inflation rate to rise have been the supply chain obstructions because of the ongoing lockdown situation in China and the commodity price disruption because of Vladimir Putin’s invasion of Ukraine.
Speaking about the recent Bank of England rate hike and its effects on the UK Neil Debenham, CEO of Fintrex, said: “The interest rate hike reflects the precarious position the UK currently finds itself in.
“It could be argued that the announcement of the EU referendum result triggered a new era of politics with government disunity and uncertainty over the future direction of the economy.
“Once Brexit had finally occurred in principle, we were suddenly confronted by the COVID-19 pandemic.
“The pandemic has since dominated the political agenda.
“Now, spiralling inflation and the rising cost of living are taking centre stage.
“This is a result of supply chain disruptions and pent-up consumer demand for goods and services.
“The interest rate rise should theoretically curb inflation, yet there are plenty of other factors at play.
“If not addressed, there are concerns we will be stuck in a prolonged economic downturn.
“This is why a whole of government approach is warranted.
“There have even been calls for an emergency budget, which could be needed if inflation continues to rise.
“Either way, businesses and consumers are certainly feeling the squeeze.
“What the market now needs is stability.
“This will be so that the UK can effectively transition out of the pandemic and establish its new identity post-Brexit.”