The BoE is aiming for inflation of 2%, and as it currently exceeds 10%, "further hikes (of its main policy rate) will be necessary to reach our target, however the peak will be lower than the market expects" , the BoE said in a summary of its meeting.

On Thursday, it raised its main rate by 0.75 points to 3%, the highest since 2008, following in the footsteps of the European Central Bank and the US Federal Reserve, which have both risen as much in recent days. , their policy rates.

But the BoE, which had been one of the first banks to raise them at the end of 2021, is now one of the first to mention a slowdown to come.

Often accused of sending unclear signals to the markets, the Bank of England opted for an explicit message by assuring them that their expectation of a rate above 5% in 2023 would be too harmful for the British economy.

“The Monetary Policy Committee is not following the market,” Governor Andrew Bailey told a news conference.

Bank of England interest rates Pierre HARDY AFP

He recognizes that by raising rates by 0.75 points, he is putting in particular difficulty households who borrow to buy, "but if we do not act against inflation, it will get worse," he adds.

In its projections, which are still based on rates that would evolve in line with market bets, the BoE indeed paints a dismal economic landscape, with eight consecutive quarters of economic contraction from mid-2022, the longest recession known by the United Kingdom.

In this scenario, the cost of borrowing would become too high for households and businesses, and would add to the cost of living crisis caused by the Russian invasion of Ukraine and soaring energy prices. .

Inflation, meanwhile, "should fall well below the 2% target in two years, and even lower in three years," said the BoE.

But even if the key rate remained at 3%, the recession would last until the end of next year, she warns.

“Bank researchers expect GDP to have contracted 0.5% in the third quarter, 0.9 percentage points lower than expected” previously, explains the Monetary Policy Committee (MPC) in his minutes.

Bank of England Governor Andrew Bailey at a press conference on November 3, 2022 in London TOBY MELVILLE POOL/AFP

Inflation is expected to have peaked at just under 11% in October, slightly lower than expected due to government measures to contain energy prices, and to remain above 10% at least until first quarter of 2023.

Blind decision

The BoE's forecasting exercise is particularly perilous given the political uncertainty in the UK and several observers have noted that once again the Bank is making its decision "blind".

Already in September, it had raised its main key rate by 0.5 percentage point on the eve of budget announcements, the very high cost of which had sown panic on the markets, pushing Prime Minister Liz Truss to resign.

From now on, the Bank is awaiting the decisions of its successor Rishi Sunak on November 17, who on the contrary has promised an austerity plan based on spending cuts and tax increases.

British Prime Minister Rishi Sunak in Parliament on November 2, 2022 in London JESSICA TAYLOR AFP

"Inflation is the enemy, weighing on families, retirees and businesses across the country," Finance Minister Jeremy Hunt said in a statement.

"The government's priority must be to restore stability, fix our public finances and bring down the debt to prevent rates from rising," he added.

Unsurprisingly, the market favored the dollar over the pound, which plunged against the greenback while Fed boss Jerome Powell said the day before that the risk was, on the contrary, not to tighten monetary policy enough.

"There is a big difference between US inflation and European inflation: the shock of the pandemic has affected us all, but not the war in Ukraine", argued Ben Broadbent, deputy governor of the BoE, during the same press conference.

© 2022 AFP