“Bank staff now expect GDP to fall 0.3% in the second quarter overall, less than expected at the time of the May report,” the Bank of England said in a statement.
“Consumer confidence has fallen further, but other measures of household spending appear to have held steady. Some indicators of business sentiment have weakened, although so far they have remained more resilient than indicators of consumer confidence and are consistent with positive underlying GDP growth. added.
The central bank said three members of its Monetary Policy Committee wanted to raise rates by 50 basis points to 1.5% – which would be the biggest increase in 27 years – but the other six fell short.
The UK economy is in a bleak state. GDP contracted 0.3% in April after falling 0.1% in March, according to the Office for National Statistics. Output fell in all three major sectors – services, manufacturing and construction – for the first time since January last year.
George Buckley, chief UK and European economist at Nomura, told CNN Business that it is “understandable” that the BoE has taken a more modest rate hike than its US counterpart.
“Bank of England [thinks] that high current inflation will in itself hurt growth and ultimately lower future inflation,” Buckley said.
“The bank is struggling with rising inflation, but at the same time with the risk of a recession – so the disagreement in the committee right now about the scale of the necessary tightening is understandable,” he added.
— Nicole Goodkind contributed to the report.