No 10 reiterates support for Bank of England’s independence

Brexit hitting economy ‘faster’ than expected, says Bank of England boss as rates hiked

The Bank of England announced at noon that it was hiking interest rates for the tenth time in a row. Decision makers on the Bank’s Monetary Policy Committee (MPC) opted to increase the bank rate from 3.5% to 4%, in a bid to bring down persistent double-digit inflation.

The Bank also outlined that while the UK is still headed for a recession, the economic downturn may yet be shallower and shorter than previously expected.

Speaking after the Bank’s announcement, chancellor Jeremy Hunt said he supported the decision to raise rates. He said: “Inflation is a stealth tax that is the biggest threat to living standards in a generation, so we support the Bank’s action today so we succeed in halving inflation this year”.

In a post-announcement press conference, Brexit was mentioned as one of a number of factors impacting the UK economy alongside a shrinking labour market, higher dependency on gas than other countries and a greater pass through of interest rates to borrowers.

Responding to questions from reporters, Ben Broadbent, deputy governor for monetary policy at the Bank of England, said the impact of Brexit on the economy was coming through faster than first expected.

Mr Broadbent said: “Brexit… has been something that has pulled on our potential output in our country and that’s been our assessment for many years. We’ve not changed our estimate of the long-running effects, but we’ve brought some of them forward and we think they’re probably coming in faster than we first expected.”

He added: “Yes it [Brexit] is having some effect on growth, although ultimately no bigger effect than we assessed some years ago. Based on the numbers for trade and some degree for the numbers on investment, we think these effects are coming through faster than initially envisaged”.

Responding to the rate hike, shadow chancellor Rachel Reeves has argued that the UK is “stuck in the global slow lane”.

She said in a statement: “With households already paying a Tory mortgage penalty, families across the country will be worried about what rising interest rates today mean for them. The reality is that under the Tories growth is on the floor, families are worse off and we are stuck in the global slow lane. We do not have to continue on this path of managed decline when Britain has so much potential to grow and thrive.

“Built on the rock of economic stability, Labour will tackle the cost of living crisis, and get our economy growing, so we can create good, new jobs and lead on the industries of the future”.

The Liberal Democrats described the raising of interest rates for the tenth consecutive time as a “hammer blow to hardworking families across the country.”

The party said on Twitter: “The blame lies squarely with this Conservative government whose botched budget last year sent our economy spiralling and who’ve completely failed to get inflation down”.