The Bank of England increased bank rate to 2.25 per cent

Bank Governor and Chancellor of the Exchequer meet

Bank Governor and Chancellor of the Exchequer meet Credit: HM Treasury Twitter

THE Bank of England increased bank rate to 2.25 per cent on September 22, as it sees Britain floundering into recession, just one day before new Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng unveil their plans to save the economy.

There is little doubt that the currently independent Bank of England and the new Government will quickly be at daggers drawn as they simply don’t agree on a policy for the country’s way forward.

At the same time as raising the interest rate by 0.5 per cent, the Monetary Policy Committee (MPC) also voted unanimously to reduce the stock of purchased UK government bonds, financed by the issuance of central bank reserves, by £80 billion over the next twelve months, to a total of £758 billion.

Effectively whilst the Government needs more money to finance its plans, not only will be Bank be making less money available, it will also make borrowing from the commercial market more expensive for the Government.

Inflation fell slightly in August to 9.9 per cent but the Bank of England has a target set at 2 per cent which it seems to believe can only be reached by limiting the money available to both consumers and businesses.

Mortgage rates will continue to increase and it is debateable whether companies will be comfortable in spending more money in investments when they are facing huge increases in prices, even with promise of caps on energy costs which are at best, short term measures.

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