That’s according to figures from the Bank of England
The Bank of England has signalled it might be nearing the end of its successive interest rate rises as it hiked rates for the tenth time running.
Governor Andrew Bailey said that he and other decision makers had “deliberately” softened the language in the minutes from their meeting.
The Bank also forecast that an expected recession will be shorter and shallower than previously thought.
It came as Chancellor Jeremy Hunt said that he would try to “support” Mr Bailey and his team’s efforts to lower inflation in next month’s spring budget.
Decision makers on the Bank’s Monetary Policy Committee (MPC) opted to hike the base rate from 3.5% to 4%, to help bring double-digit inflation under control.
The MPC said: “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”
Inflation has already begun to come down off the highs of late last year, and the Bank said it expects the measure to fall quickly in 2023.
But experts hung on the wording of the statement, which was much softer than in the past.
The MPC had previously said that it would act “forcefully” to slash inflation if needed, but dropped that word on Thursday, a move that governor Andrew Bailey said was deliberate.
Mr Bailey said: “It is the case that we’ve changed the language in the MPC statement, and that is quite deliberate.”
He added: “I think that reflects that we have seen a turning of the corner, but it’s early days and the risks are very large.”
He added it was “too soon to declare victory” over inflation just yet.
Speaking to broadcasters during a visit to a shopping centre in Woking, the Chancellor told broadcasters that he would help Mr Bailey to meet the targets.
“We recognise it is very difficult for families, businesses, up and down the country when interest rates go up,” Mr Hunt said.
“But much harder for them would be if we didn’t take decisive steps to bring down inflation. That’s why the Bank of England is absolutely right to do what they’ve done today.
“And we in the Government must make sure we support them in what I do in the budget, to make sure that we make it easier not harder for them to do what we all want to do, which is to halve inflation.”
The Bank said that the UK is still headed for a recession but it upgraded its forecast for the next year from a previous, more downbeat outlook.
Peak-to-trough gross domestic product (GDP) is set to shrink by 1%, from around 3% in an earlier forecast.
This is partly because wholesale energy prices have fallen significantly since the MPC produced its last forecast, in November.
The UK will suffer a recession of five consecutive quarters, starting in the first three months of 2023.
But the decline will be much softer than in previous recessions, such as during the 2008 financial crisis. A recession is defined as at least two consecutive quarters of falling output.
GDP is expected to fall by 0.5% over 2023, and by 0.25% in 2024, before picking up to almost 1% by 2025.
The outlook for the labour market has also improved, the MPC said.
The number of job vacancies is set to decline, and redundancies will remain low, as companies are less inclined to let staff go as quickly as they did in previous recessions, the Bank suggested.
The rate of unemployment is expected to peak at 5.25%, lower than the 6.5% that was previously forecast.
A lower rate of unemployment and therefore greater job security indicates that people have more confidence to spend.
Yet workforce participation has weakened as over-50s have been exiting the workforce since the pandemic, reports suggest.
The MPC said that some of these people look to be returning to the labour market, but many may not come back.
“The effects of the pandemic on potential participation are assumed to start to fade, but some effect persists beyond the end of the forecast period”, it said.
Markets expect interest rates to peak at 4.5% towards the end of this year, which is significantly lower than the 5.25% peak that had been forecast when the MPC met in the wake of the mini-budget.
Rates will then stay above 3.25% for at least the next three years, according to the forecast.
Seven members of the Bank’s nine-person MPC voted for the 0.5 percentage point rate hike, while two members voted to keep the base rate at 3.5%.
The decision comes as the US Federal Reserve decided to push up its base interest rate by 0.25 percentage points, its smallest increase since last March.
But the Fed’s chairman Jerome Powell said that “the job is not fully done”, indicating that further rate rises could be necessarily to control inflation.
Meanwhile, the European Central Bank (ECB) opted to raise its base rate by 0.5 percentage points, and also indicated that it expects rates to go up further.
The UK is set to be the only major economy that shrinks this year, according to a report from the International Monetary Fund (IMF) that put Britain’s economy behind even that of sanction-hit Russia.
The Bank said that average household energy bills will likely drop below £3,000 – the level of the Government’s price guarantee – from the start of July.
But it still thinks that gas prices will remain high for years to come. In 2025 gas prices will be around 136p per therm, compared to 52p on average between 2010 and 2019.