The Bank of England has raised its base interest rate by 0.5 percentage points to 2.25 per cent, vowing to “respond forcefully, as necessary” to soaring inflation. The UK's central bank said it now expects a 0.1 per cent fall in gross domestic product over the current quarter, indicating that the economy is already in a recession. The BoE’s nine-member Monetary Policy Committee (MPC) voted 5-4 in favour of the rise after coming under pressure to deliver another big increase as inflation in the UK outpaces that in other major economies. The shift marks the seventh increase in a row and pushes the base rate to the highest level since the financial crisis. In December 2008 the base rate was slashed from 3 per cent to 2 per cent. The bank had been forecast to increase rates by 0.75 percentage points to 2.5 per cent, but such a rise was backed by only three committee members. One member voted for a rise of just 0.25 percentage points. Michael Hewson, chief market analyst at CMC Markets, said the result of the vote shows the committee “is in disarray — split across the board”. “Certainly not a good look when so many questions are being asked about their competence,” he added in a tweet. The BoE <a href="https://www.thenationalnews.com/Business/UK/2022/08/04/bank-of-england-lifts-interest-rates-to-175-in-largest-leap-for-27-years/" target="_blank">raised its benchmark rate last month by half a per cent to 1.75 per cent</a>, the biggest increase in 27 years. The latest decision was announced on Thursday, a day after the US Federal Reserve elevated interest rates by another 75 basis points and signalled further squeezes. The announcement was delayed by a week as the UK was in the midst of a nationwide mourning period following the death of Queen Elizabeth II. “Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the committee will respond forcefully, as necessary,” the BoE said, using a similar form of words to previous months for its policy intentions. Inflation in Britain is at red-hot levels, having reached a 40-year high in July when it soared past 10 per cent. In August consumer price inflation fell to 9.9 per cent, its first drop in almost a year. The BoE now expects inflation to peak at just under 11 per cent in October, below the 13.3 per cent peak it forecast last month, before Liz Truss won the Conservative Party leadership and became Britain's prime minister with a promise to cap energy tariffs and cut taxes. Inflation would remain above 10 per cent for a few months after October, before falling, the BoE predicted. The rise was announced by the BoE ahead of <a href="https://www.thenationalnews.com/world/uk-news/2022/09/22/what-will-be-in-kwasi-kwarteng-s-mini-budget-up-to-30-billion-in-uk-tax-cuts-on-cards/" target="_blank">Chancellor Kwasi Kwarteng's expected mini-budget on Friday</a> which is tipped to include £30 billion ($33.9bn) in tax cuts. The MPC also voted unanimously to reduce the BoE's £838 billion of government bond holdings by £100 billion over the coming year, by allowing bonds to mature and through active sales, which will start next month. This is in line with the goal it stated in August. Other central banks are also acting more aggressively to get prices under control. Before the BoE’s statement, the pound rose in early trading on Thursday, up 0.5 per cent at $1.13255 against the dollar at 10am UK time. Against the euro, it was flat at 87.24 pence The rise came after sterling plummeted to below $1.13 for the first time in 37 years following the Fed’s announcement on Wednesday, which pushed the dollar to a two-decade high. The pound has softened 16 per cent against the dollar this year. After the bank announced its decision on Thursday, sterling was close to wiping out earlier gains against the dollar, and was trading at around $1.1286. This summer, rising interest rates in Britain have provided little support to sterling amid a gloomy outlook for the economy and a worsening cost-of-living crisis heading into winter. “There is little to no confidence that the BoE can pull something out of the bag that will support the pound today,” said Jane Foley, head of FX strategy at Rabobank in London, ahead of the announcement. “Since May it has been clear that BoE rate hikes are not having much of an impact in halting downside pressure on sterling with UK fundamentals undermined by slow growth, a huge current account deficit and recently by concerns over the fiscal outlook.” Mohsin Rashid, co-founder of cashback app ZipZero, said the bank’s latest bid to combat spiralling inflation “will further widen wealth divides across the UK”. “Those reliant on mortgages, personal loans, credit cards, and other forms of debt will bear the brunt worst,” he said. “The knock-on effects, however, will be felt by businesses experiencing lower sales and demand as a result of greatly diminished consumer spending power. “We must remember, these issues are interconnected — businesses will suffer from high inflation and interest rates, just as consumers will. Most worryingly, both businesses and consumers considering lending options may now find the cost of borrowing too high. The saving grace is that out of high-pressure environments, innovation often thrives.” Alice Haine, personal finance analyst at Bestinvest, a DIY investing and coaching service, said the bank’s decision to raise interest rates by 50 basis points “marks the first-time interest rates have risen by 0.5 per cent over two consecutive months since December 1994.” She said the decision “sends a strong signal that the bank is serious about getting inflation back down to more palatable levels in the medium term, with three members voting for a more aggressive 0.75 per cent hike, as it looks to curb the worst bout of inflation in 40 years and edge closer to its target of 2 per cent.” Switzerland’s central bank on Thursday carried out the biggest increase ever to its key interest rate. The Swiss National Bank could not rule out that further increases beyond the rise of three-quarters of a percentage point “will be necessary to ensure price stability over the medium term,” said Thomas Jordan, chairman of SNB governing board. It aims to curb inflation that hit 3.5 per cent in August, a rate much lower than the record 9.1 per cent in the 19 neighbouring EU countries that use the euro. The Swiss rate increased from minus 0.25 per cent to 0.5 per cent, ending several years of negative interest rates — a testament to its stable growth, low-inflation environment, coupled with Switzerland’s appeal as a safe haven for assets.