Bank of England Hikes Rates to 1%, Warns of 10% Inflation

The Bank of England (BOE) has hiked its key interest rate to its highest level in 13 years amid soaring inflation.

The central bank raised its policy rate from 0.75% to 1% on Thursday for its fourth consecutive hike. Costs of living have soared in the U.K. — consumer prices in March increased 7% year-on-year, well above the BOE’s target of 2%.

BOE warned that it expects inflation to reach 10% this year as the war in Ukraine continues to push fuel and food prices upward, while lockdowns in China will make importing harder.

The central bank said that inflation could fall by next year at the earliest and come closer to its 2% target in around two years.

Wages have not been able to catch up with price surges, so U.K. citizens will have to rein in their spending. This risks a recession for the British economy, the central bank said, noting that it sees GDP contracting in 2023.

“We may need to increase interest rates further in the coming months. But that all depends on what happens in the economy and what we think will happen to the rate of inflation over the next few years,” the BOE said in a statement.

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