The predicts that interest rates won't increase significantly.

Due to concerns regarding the impact on the UK economy, the central bank saw the need to moderate interest rate expectations.

The Bank of England's economic projections are bleak.

Although interest rates have reached their highest point in more than a decade, they are likely to stay below 3%. That was the Bank of England's message as it attempted to lessen the impact of the steepest increase in borrowing costs in more than three decades.

The economic predictions made by Threadneedle Street are not promising. The output will continue to decline over the next two years, making this the longest recession in modern history. The rate of unemployment will increase from 3.5% to about 6.5%, virtually doubling. Over the following two years, inflation will decrease from 10.1% to much below its 2% target.

The estimates in the Bank's quarterly monetary policy report, however, critically rely on the assumption that interest rates will increase to the levels anticipated by the financial markets. When the report was being written at the end of October, a peak of 5.25% was anticipated; however, it has since dropped to 4.75%.

Rates obviously won't rise to that level, according to the Bank. The majority of its nine-member monetary policy committee (MPC) feels that "additional rises in bank rate may be required for a durable return of inflation to goal, albeit to a peak lower than factored in to financial markets," according to the minutes of its most recent meeting.

The Bank of England increased the UK base interest rate by the largest percentage point since 1989, to 3%.

It is clear why Threadneedle Street felt the need to soften expectations for interest rates: it recognizes the danger of driving rates too high.

The Bank provided forecasts based on where the markets believe rates would peak along with projections of what would occur if borrowing costs remained the same. Based on this, inflation would decrease a little more gradually, but it would still be much below its objective after three years.

Instead of 2.9%, the peak to trough decline in the gross domestic product would be 1.7%, and the unemployment rate would increase to just over 5% as opposed to 6.5%. Even though there would still be economic harm, it would be less severe than if rates rose above 5%.

Some MPC members are already wary of applying too much pressure on a still-fragile economy. With Swati Dhingra choosing a half-point increase and Silvana Tenreyro choosing a quarter-point increase, only seven of the nine voters supported an increase of 0.75 points.

The official cost of borrowing has increased from 0.1% to a level last seen in late 2008 as a result of the MPC raising interest rates eight times in the past meetings. According to Tenreyro, the economy was already in a recession and that the real economy had not yet benefited significantly from the majority of policy tightening over the previous year.

Despite its own predictions that the labor market won't remain tight for long, the MPC's majority still expressed concern about it. Even though the chancellor's autumn statement will further slow the economy, it has not taken into account the increased taxes and reductions in public spending that are expected to be announced by Jeremy Hunt on November 17.

The MPC will be viewed by the financial markets as being significantly more dovish than they had anticipated. The Bank claims that although another adjustment to interest rates will be necessary, any additional changes would be unnecessary.

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