TEHRAN- The Bank of England raised interest rates after saying the country was already in recession partly because of the extra public holiday for the queen's funeral.The interest rate hike to 2.25% from 1.75% is the highest level seen since the global financial crisis in 2008 and will have a major impact on millions of people's finances.The Bank of England claims the rise has been implemented to help ease inflation in the long run but it is the seventh increase in a row since the UK came out of the covid lockdown and adds to the cost of living crisis.It is widely expected that more hikes are on the way with the bank admitting it would "respond forcefully, as necessary" to inflation which it is now forecasting to peak at just under 11% in October and to remain at above 10% throughout the winter.The central bank's decision will hit homeowners with a mortgage the most as they will now be paying extra monthly repayments as a result on top of other rising bills.
Other households and small businesses who have taken out loans from banks, including car loans, will also suffer from paying higher monthly bills.Struggling families have certainly not seen the worst yet with markets predicting the central bank to hike interest rates until they peak at a massive 4.5% next year.While the British economy moving into crisis mode territory may not exactly surprise many economists, not all saw a recession forecast coming.
But the bank says it expects the UK's gross domestic product to shrink by 0.1% in the third quarter of this year.
That is two consecutive quarters of contraction.The central bank said the additional public holiday to mark the day of the queen's state funeral will now partly contribute to a negative growth figure for the three-month period.Critics say the 24-hour media coverage by British state media helped erase the financial crisis from the minds of some ordinary households who will be the ones paying the price with taxpayers money.The exact costs of the highly expensive policing operation and other related security aspects might never be known.
Likewise, the exact cost of shutting down businesses during a working day and the financial disruptions that caused.It is clear that many workers on low-paid jobs and the many self-employed who rely on a working day to earn a wage lost out, that day, during what is a financial crisis.
As did some of the hungry who saw their foodbank closed for the funeral.On a day when the privileged rich were under media attention the poor who can't afford to heat their homes or the hungry for that matter received no media attention.What is also clear is that if the June public holiday to mark the queen's 70 years in power led to a contraction in the British economy then the public holiday to mark the queen's funeral helped steer the economy into recession.The bank also gave a bleak assessment of the cost of living crisis saying "energy bills will still go up".European countries are facing an energy shortage crisis after the war in Ukraine cut off gas supplies ahead of the winter season.
The cost of gas has skyrocketed with expensive consumer bills spearheading inflation levels.Critics accuse Western governments of triggering the war by ignoring Russia's security guarantees and prolonging the fighting with a steady flow of weapons instead of a peace initiative.British households have already started being sent notices of how much their energy bills will rise when the price cap will be raised once again at the start of October.
As expected, consumers vented their anger on social media platforms.A new report shows almost 11 million people across the UK have struggled to pay at least one house bill.
That is one in five UK adults.
The survey for the charity group Money Advise Trust shows the extent of the impact rising bills is having on households.Despite a government cap which Downing Street claims will help the poor, the research shows energy prices are already unaffordable for millions of poor people or forcing them to cut back spending in other areas.Meanwhile, the Bank of England's interest hike has seen the pound come under pressure.
The pound fell to a record low of $1.11 for the first time in nearly forty years and experts believe it is unlikely to rally any time soon.At its highest point earlier this year 1 used to buy $1.37.
The falling price is making it much more expensive to import goods and will likely add to inflation.The country's opposition chancellor Rachel Reeves says the bank's interest rate hike "shows how this Tory government has lost control of the economy"."Their failure to foot any of their energy package with a windfall tax on the enormous profits of oil and gas producers is creating dangerous uncertainty," she said.The opposition Liberal Democrats' treasury spokeswoman Sarah Olney also hit out, saying the interest rate rise would be a "hammer blow to struggling homeowners who are being punished by the government's failure to control inflation"."This monster rate rise could have been avoided if Conservative ministers bothered to take action sooner on energy bills and the rising cost of living," she added.It has also emerged that the cost of a child's lunch at school has risen by 70% over the past 18 months, reflecting the general rise in groceries.
Food items such as bread, cheese, tomatoes and biscuits have all soared in price as food inflation rises.
Tomatoes have seen a huge jump in price of 146%, while cheese is up 132%.
This comes as the country is bracing for crippling industrial action.
It has been announced that tens of thousands of British railway workers nationwide will go on strike on October 8.More than 40,000 rail workers will walk out for what will be the third day of rail strikes slated for next month.
The Rail, Maritime and Transport union said that the strike is over pay and conditions.Rail strikes are already planned to take place on October 1-5 for Aslef union members.
This will mean that around 10% of all UK services are likely to run on these dates.Britain has faced strikes by workers across a number of sectors as wages fail to keep pace with soaring inflation and a deepening cost-of-living crisis.The UK postal firm, the Royal Mail, has offered to take a dispute over pay and working conditions to arbitration as further strikes involving 115,000 workers loom.
With another recession after the last one during the height of the covid pandemic, there are strong fears of increased unemployment figures and those who do keep their jobs fearing cuts to pay and benefits.Businesses are already making fewer sales as consumers cut back on spending because of the rising cost of living crisis and they are not expected to bode well during this period of economic uncertainty.The pressure is growing on the government which is widely accused of serving the rich.
It appears that very little of what the chancellor Kwasi Kwarteng announced in the budget will soften the financial blow hitting millions of households.