The Bank’s nine-member Monetary Policy Committee voted 8-1 to raise interest rates by 0.5 percentage points to 1.75 percent on Thursday, the biggest increase in 27 years. The BoE’s move followed similar aggressive steps by the European Central Bank and the US Federal Reserve in the face of soaring inflation. However, its gloomy forecasts suggested that Britain faced a much bleaker economic outlook than the US or the eurozone. Households are more exposed to energy price shocks than in the US and less protected by government measures than in the eurozone, while the UK economy has also been hit by the effects of leaving the EU. The Bank predicted the country would slide into a 15-month recession later this year, with GDP shrinking by more than 2 percent from peak to threshold. Consensus Economics, which averages the forecasts of leading economists, projects that the US will grow by 1.5 percent and the euro zone by 1.7 percent in 2023. The BoE said that due to the latest rise in natural gas prices due to supply cuts from Russia, it now expects inflation to rise above 13% at the end of the year — much higher than it forecast in May. It would remain at “very high levels” throughout 2023 before falling back to the 2 percent target in two years. “There is an economic cost to war. But it will not distract us from setting monetary policy to bring inflation back to the 2 percent target,” BoE Governor Andrew Bailey said after the decision. BoE forecasts showed that household income after tax would fall in real terms in both 2022 and 2023, even after taking into account the fiscal support announced by the government in May. A peak decline of more than 5 percent in household income would be the worst on record, with data stretching back to the 1960s. The BoE also now expects a longer and deeper recession than it predicted in May. It said the economy would contract from the fourth quarter of 2022 for five consecutive quarters, with an overall hit to GDP similar to that seen in the early 1990s. Even as the recovery began, the BoE said growth would be “ very weak by historical standards.” Sterling weakened against the euro after the decision, reflecting speculation that a prolonged recession would limit the scale of future rate rises. Its forecasts showed inflation would hover near double digits for at least next year, but could fall below the 2 percent target by the end of 2024 even if the central bank takes no further policy action. The bleak predictions led to angry political backlash. Rachel Reeves, the shadow chancellor, said it was “further proof that the Tories have lost control of the economy” while Tory leadership candidates “tour the country announcing unworkable policies that will not help people get through this crisis ». The BoE is under increasing pressure from Foreign Secretary Liz Truss, who said on Wednesday she would look to change its mandate if she becomes prime minister. But Rishi Sunak, a former chancellor and her Tory leadership rival, said the forecast rise in inflation reinforced his claim that Truss would be reckless to raise borrowing and cut taxes now.

“The bank has acted today and it is imperative that any future government tackles inflation, not exacerbates it,” he said. “The increase in borrowing will put upward pressure on interest rates, which will mean increased mortgage payments for citizens.” Sunak’s team said a 0.5 percentage point rise in interest rates would cost the Treasury more than £6bn in higher debt servicing costs. Truss claimed Mr Sunack is partly responsible for pushing Britain into recession due to the series of tax rises he introduced as chancellor.