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The Bank of England delivered its biggest interest rate increase in 33 years but strongly pushed back against market expectations for the scale of future increases, warning that following that path would induce a two-year recession.
The Monetary Policy Committee voted 7-2 to lift rates by 75 basis points to 3 percent, the highest level in 14 years.
But in an usually blunt comment on investors’ outlook for future hikes, it stressed the peak in rates will be “lower than priced into financial markets”.
Staying on the market path used in the forecasts, which peaks at around 5,25 percent next year, would knock 3 percent off gross domestic product and ultimately push inflation to zero, the BOE said.
An outlook based on rates staying at their current 3 percent level implies a shorter, shallower recession and sees inflation fall close to target in two years.
“We think the bank rate will have to go up less than what’s currently priced into financial markets,” BOE Governor Andrew Bailey said at a press conference.
“That is important because, for instance, it means that the rates of new fixed-term mortgages should not need to rise as they have done ”. – Bloomberg.
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