Bank of England launched the highest interest rate in 27 years, predicting a lengthy recession

The Bank of England hiked interest rates by 50 basis points, its most significant boost since 1995, and cast the U.K.’s most prolonged global recession since the global financial crisis.

The sixth consecutive growth takes borrowing costs to 1.75% and marks the foremost half-point hike since the Bank of England was liberated from the British government in 1997. The Monetary Policy Committee voted by a plurality of 8-1 in favor of the half-point rise. It cited climbing inflationary pressures in the U.K. and the rest of Europe since its previous meeting in May.

Ofgem, Britain’s energy regulator, increased the energy price cap by 54% from April to accommodate soaring global costs. It is expected to rise significantly in October, with annual household energy bills predicted to surpass $4,396. The bank now predicts headline inflation to rise 13.3% in October, remain elevated throughout 2023, and fall to the 2% target in 2025.

The MPC remarked that the labor market stays tight, with rising domestic costs and price pressures. They said that there is a risk that a “longer period of externally generated price inflation will lead to more enduring domestic price and wage pressures.” Following the announcement in a news conference Bank of England Governor Andrew Bailey said the shock of the Russian invasion is now the largest contributor to U.K. inflation.