The central bank on Thursday raised interest rates by 75 basis points, the biggest single increase since 1989, and warned of a prolonged recession, while also looking to moderate market expectations for further aggressive monetary tightening. The Bank of England has an inflation target of 2%, but price rises hit a 40-year high of 10.1% in September and are expected to peak in the fourth quarter. “We both need to grow [the] bank rate but also take steps to taper QE [quantitative easing] portfolio, to tighten policy to achieve our goal,” Pill said. “And the fact that there were these disruptions in the markets, which had their own needs to be addressed, that didn’t deter us or take us away from that medium-term core objective of what the Monetary Policy Committee is trying to do. “ Pill argued that recent volatility in the UK economy, such as the bond and currency market panic that greeted former prime minister Liz Truss’ fiscal policy announcements in late September, had distorted market expectations about the future path of UK interest rate hikes. Bank. “We don’t think interest rates will need to rise as high as the market has been pricing in, precisely because that would cause the economy to slow down more than is necessary to bring this inflationary momentum under control,” Pill added. The Bank expects an economic recession that began in the second half of 2022 will now last until mid-2024, which will be the biggest period of GDP contraction since records began. “What we’re seeking to do, we’ve always sought to do this, is find the balance that will get us back to our target of 2% inflation without creating unnecessary and costly problems on the real side of the economy,” Pill said. “And so creating that balance, signaling that balance, that was really our key message yesterday.” The Bank issued uncharacteristically blunt guidance to markets on Thursday and Pill said the period of political and economic turmoil in recent months meant the Monetary Policy Committee was trying to “re-anchor [its] their own thinking on the most fundamental factors’ of inflation. “I think we’re trying to reposition our communication around a forecast that emphasizes these more fundamental factors,” he said. “And I think we’re hoping, that we’re going to give markets an opportunity to re-establish their thinking, and ultimately their prices, in this world that’s looking in and beyond the disruptions that we’ve seen lately. few months.” The Bank was forced to intervene in the UK government bond market with an emergency two-week gold buying program in September after the market reacted to Truss’ “mini-budget” which left pension funds on the brink of collapse and the pound at a record low . Markets have stabilized somewhat following the installation of former finance minister Rishi Sunak as the prime minister. His return to a more conservative fiscal policy in turn eased pressure on the Bank to act even more aggressively on inflation.
