The central bank previously forecast the economy would grow in the current fiscal quarter but said it now expects gross domestic product (GDP) to fall 0.1%.
It comes after a reported 0.2% fall in GDP in the second quarter and would mean the economy is currently in recession.
A technical recession is when the economy shrinks for two quarters in a row.
That Bank Monetary Policy Committee (MPC) decided to raise interest rates from 1.75% to 2.25% – the highest level since November 2008 – to cope with the sharp increase in the cost of living.
The committee minutes say that the above targets “hard work with wage growth and domestic inflation” required a “strong response”.
Still, the rate hike fell short of expectations from financial markets, which had forecast a 0.75 percentage point hike in line with the Federal Reserve’s announcement on Wednesday.
The MPC made the decision after five members of the nine-member board voted in favor of the 0.5 percentage point increase, including the bank’s governor Andrew Bailey.
Three members – Jonathan Haskel, Catherine Mann and Dave Ramsden – voted for a 0.75 percentage point increase, while one member – Swati Dhingra – called for a 0.25 percentage point increase.
The decision to raise interest rates is an attempt to keep inflation under control. It is the best tool the Bank of England has to steer inflation – currently at 9.9% – back towards its 2% target.
At the September meeting, the MPC also said inflation is now unlikely to rise as much as previously expected after the government announced plans to freeze household energy prices earlier this month.
Consumer Price Index (CPI) inflation is now expected to peak in October at “almost 11%”. This would be the highest inflation the UK has seen since January 1982.
At its last meeting in August, the Bank of England warned that inflation was likely to peak at 13.3% and the country would experience five straight quarters of recession.
https://www.theargus.co.uk/news/national/uk-today/22563130.bank-england-interest-rates-rise-0-5-2-25/?ref=rss Bank of England interest rates rise 0.5% to 2.25%