The Bank of England’s Monetary Policy Committee (MPC), which sets monetary policy to meet the 2% inflation target, announced on 2 February its decision to raise UK interest rates by 50 basis points to 4%. 

This is the second successive month that the MPC has increased rates by 50 basis points. UK interest rates are also now at their highest since October 2008. The MPC voted by a majority of 7-2 to increase interest rates to 4%, with two members (Swati Dhingra and Silvana Tenreyro) voting against the proposition, preferring to maintain Bank Rate at 3.5%. The next announcement on interest rates is on 23 March 2023.

“Another substantial hike in interest rates will come as a painful blow to people and companies already struggling under myriad soaring cost pressures, with borrowers particularly affected,” says Suren Thiru, Economies Director for ICAEW. “The aggressive rate rises over the past year will increasingly drag on our economic prospects in 2023 as they filter into the broader economy, stifling activity and weakening confidence.

“With inflation projected to ease sharply, today’s 50bps rise should be the last of this magnitude. If we do slide into recession, then policymakers may be forced to reverse policy sooner than many expect.”

The Bank of England also released its quarterly Monetary Policy Report, which provides an update on the bank’s outlook for the UK economy. In its latest projections, the central bank still expects the UK to enter recession this year, but it will be shorter and more shallow than previously thought. The downturn is now expected to last just over a year rather than almost two as energy bills fall and inflation eases. The Bank predicts inflation will fall back to 8% in June before dropping further to about 3% at the start of next year. However, it also warned that the rate of wage rises risked a slower fall in inflation.

Further information

• Minutes from the February MPC meeting
• Bank of England Monetary Policy Report: February 2023