, is expected to peak at just under 11pc in October. However, policymakers pushed back against expectations that rates will need to rise to 5pc to keep a lid on price rises. The Bank said raising rates to this level would push inflation down to zero in three years time, well below its 2pc target, triggering a two-year recession and forcing a million more people into unemployment. This would be the longest period of economic decline since comparable records began in the 1920s, although the 3pc projected drop in output would be about half that seen during the financial crisis. 'Further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets,' policymakers said in their quarterly economic outlook. However, the Bank warned that the outlook for the UK economy remained 'very challenging', even if interest rates remain at current levels. Policymakers expect the economy to remain in recession 'for a prolonged period', regardless of interest rates while inflation is projected to stay in double-digits until next spring. The Bank warned that even if interest rates were held at 3pc over the next few years, the UK would remain in recession until the end of 2023, with a forecast of very weak growth after that. The clear statement by the Bank is likely to bring down the cost of fixed-rate mortgages, which are based on future rate predictions, as well as current policy rates. Almost all new mortgages this year have been taken out at fixed rates, although the financial market turbulence triggered by former chancellor Kwasi Kwarteng's mini-Budget pushed up the cost of these deals by hundreds of pounds a month. Just over two million households are due to refinance their mortgage before the end of next year, with 80pc of them currently paying rates of less than 2.5pc. The Bank said many of these borrowers faced a big jump in payments, averag){kind=link}
Threadneedle Street says it will be forced to act cautiously in future as it increases borrowing costs by most in 30 years
Britain will suffer the longest recession on record if the Bank of England continues to raise interest rates sharply, Threadneedle Street warned as it unveiled the biggest increase in borrowing costs in three decades.
The Bank said that the economy is already in decline, raising the prospect of severe damage if rates go up as much as markets expect.
It came as policymakers increased rates by 0.75 percentage points in the biggest rise since Black Wednesday in 1992, taking them to 3pc. However, the comments suggest that further increases will be limited.
Inflation, as measured by the consumer prices index (CPI), is expected to peak at just under 11pc in October.