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Bank of England raises interest rates to 3.5% in ninth increase in a year

In a three-way split vote, when two members of the nine-strong MPC voted to keep the base rate on hold and another member pushed for a more aggressive rise, the MPC said there were “considerable uncertainties around the outlook”.

While global supply chain blockages have eased, bringing down the price of many commodities and goods since they rose sharply earlier this year, cost pressures have remained throughout global markets.

With cold winter weather biting much of Europe, the path of gas prices and the cost of food could rise, keeping inflation higher for longer.

The US Federal Reserve and the European Central Bank have signalled that they will ease back on rate rises in 2023 following forecasts that there is a strong prospect of a recession and job losses across the industrialised world.

Russia’s invasion of Ukraine continues to disrupt the supply of gas and some foodstuffs, adding to inflationary pressures.

The Bank’s report said there were several indicators showing the economy had weakened since the summer. It expects a 0.1% contraction in GDP in the last quarter of 2022, which would put the UK economy officially in recession after a 0.2% contraction in the third quarter. The downturn is expected to last well into 2023, though it will be milder than expected in the Bank’s forecasts last month.

Giving a strong indication that the housing market has already weakened, the number of home purchases has fallen to below 60,000 a month, the lowest since 2013.

Bailey voted with the majority of MPC members for a 0.5 percentage point rise. Two members of the MPC, the LSE professors Swati Dhingra and Silvana Tenreyro, said the cost of living crisis facing millions of households and previous interest rate rises meant the economy would slow without further rate rises.

Content retrieved from: https://www.theguardian.com/business/2022/dec/15/bank-of-england-raises-interest-rates-to-35.

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