Sat | Jul 4, 2026

UK recession fears mount after Bank of England hikes borrowing rates by more than expected

Published:Friday | June 23, 2023 | 12:32 PM
A man walks past the Bank of England, at the financial district in London, on May 11, 2023. The Bank of England is poised to raise borrowing costs again on Thursday, June 22, 2023, to combat stubbornly high inflation, which has failed to come down from its peak as quickly as expected. (AP Photo/Frank Augstein, File)

LONDON (AP) — Fears that the British economy is heading for recession mounted sharply Thursday after the Bank of England raised borrowing costs by more than anticipated, seeking to combat stubbornly high inflation with a hike that will hit borrowers hard, particularly homeowners who have to refinance in the coming months.

On a busy day for central bank action in Europe, the Bank of England said its nine-member Monetary Policy Committee decided to lift its main interest rate by half a percentage point to a fresh 15-year high of 5%. All but two on the panel backed the half-point increase.

The size of the bank's 13th hike in a row was a surprise, with most economists predicting a smaller quarter-point increase.

Some even termed it a panic move given that there had been hopes as recently as last month that the bank would pause its rate-hiking cycle.

Financial markets are pricing in a potential rate peak of 6%, a level not hit since early 2000, after Bank Governor Andrew Bailey warned of further increases if inflation fails to show clear signs of slowing.

“We are committed to returning inflation to the 2% target and will make the decisions necessary to achieve that,” he said.

Clearly, the bank has been spooked by inflation failing to ease as fast as predicted from October's peak of 11.1%. Figures on Wednesday showed UK inflation unexpectedly holding steady at 8.7%.

Inflation has proven stickier in the UK than in other major economies, with many blaming the bank for being too slow to start raising borrowing rates and Britain's departure from the European Union, which has added to import costs.

With wages rising fast, it's increasingly clear that high inflation has become embedded in the economy.

Follow The Gleaner on Twitter and Instagram @JamaicaGleaner and on Facebook @GleanerJamaica. Send us a message on WhatsApp at 1-876-499-0169 or email us at onlinefeedback@gleanerjm.com or editors@gleanerjm.com.