Image of the Bank of England in London on November 1, 2018. The bank said on Thursday it was raising its Bank Rate by 0.75 percentage point. File Photo by Andy Rain/EPA-EFE
Nov. 3 (UPI) -- The Bank of England on Thursday increased Britain's interest rate by 0.75 percentage point, its biggest jump in 33 years, to 3%, while issuing warnings of challenging economic times ahead.
The bank's Monetary Policy Committee voted 7-2 in favor of the rate hike in an ongoing effort to lower inflation to the target 2%. The central bank noted that Consumer Price Index inflation was 10.1% in September and expected to rise to around 11%.
"The MPC's latest projections described a very challenging outlook for the UK economy," the central bank said in a summary and minutes of the meeting. "It was expected to be in recession for a prolonged period and CPI inflation would remain elevated at over 10% in the near term."
Higher interest rates are expected to push inflation down sharply beginning in mid-2023.
Unemployment is expected to rise to 6.5% by 2025.
The central bank said that since its previous forecast, uncertainty around the outlook for Britain's retail energy prices has fallen to some extent following further government interventions.
The bank said it is working on the assumption that some fiscal support will continue beyond the current six-month period of the Energy Price Guarantee.
"In boosting aggregate private demand relative to the August projections, the support could augment inflationary pressures in non-energy goods and services," the bank said.
It was the Bank of England's first meeting since Liz Truss ended her term as prime minister. Her government and the bank were at odds because of Truss insistence on pushing a large tax cut at the same time the central bank was fighting inflation by increasing interest rates.
New Prime Minister Rishi Sunak has offered a similar warning as the Bank of England of difficult times ahead for the British economy while essentially walking back the Truss tax plan.
While increasing interest rates at a faster pace, bank officials have said they were unlikely to raise interest rates as high as traders had expected, which was about 5.2% when the bank set its forecasts in late October.