On Thursday, the Bank of England raised interest rates for the seventh consecutive time to 2.25 per cent in a bid to temper inflation. Meanwhile, ministers gave the green light for fracking to go ahead in England.
Interest Rates
The Bank of England’s Monetary Policy Committee [MPC] voted by a five-to-four majority to lift rates by half a percentage point, going from 1.75 per cent to 2.25 per cent.
It is the seventh time in a row that the MPC has convened and raised rates, continuing a pattern that has been ongoing since December.
Of the four that voted against a 0.5 percentage point increase, three wanted to raise rates further (by 0.75 percentage points), while the other favoured an increase of 0.25 per cent.
Nevertheless, interest rates are now at their highest since 2008, when the country was in the thick of the global financial crisis.
Inflation stands at 9.9 per cent, significantly above the Bank’s two per cent target. Analysts expect it to increase in October, even factoring in the government’s measures to cap energy prices for households and businesses.
However, the Consumer Price Index [CPI] inflation is expected to increase by less than anticipated thanks to government intervention. It forecasts that inflation will peak in October at just under 11 per cent, rather than surpassing 13 per cent as previously thought.
The economic outlook
As interest rates rise, the Bank of England also released a forecast suggesting that the UK economy is already in a state of recession.
The Bank expects UK GDP to have decreased by 0.1 per cent over Q3, replicating the contraction over the second quarter and triggering a technical recession with two consecutive quarters of decline.
Previously, the Bank had expected slim growth in the third quarter before slowing in Q4, but it now believes that the economy has shrunk faster than predicted.
Addressing inflation, the Bank said that it is “expected to remain above 10 per cent over the following few months, before starting to fall back.”
Fracking ban lifted
On Thursday, business, energy, and industrial strategy secretary Jacob Rees-Mogg announced the end of the ban on fracking in England.
In 2019, the ban was implemented amid concerns that the practice could lead to earth tremors. At the time, Cuadrilla, an oil and gas exploration firm which was drilling in Lancashire, recorded 120 tremors at its site, the majority of which were too minor to be felt by people.
The British Geological Survey [BGS] has recently published a new review into fracking, which said that understanding of the true impacts of fracking remains limited.
It said that it was a “scientific challenge for the geoscience community” to determine the level of risk around “the occurrence of large earthquakes” because of fracking.
The report added that it is “not possible to identify all faults that could host earthquakes with magnitudes of up to 3…even with the best available data.”
Although the report concludes that there is little difference now compared to 2019 in terms of the scientific conclusions, the urgency of shoring up domestic energy security in the wake of Russia’s invasion of Ukraine has prompted a rethink over allowing the practice to resume.
Rees-Mogg said: “In light of (Russian president, Vladimir) Putin’s illegal invasion of Ukraine and weaponisation of energy, strengthening our energy security is an absolute priority.”
He added that “tolerating a higher degree of risk and disturbance appears to us to be in the national interest given the circumstances.”
Despite the ban being lifted, there remain strict regulations around fracking permits. Any fracking company is required to halt activity if it records a tremor over a magnitude of 0.5 at the site, and any seismic activity whatsoever requires firms to proceed with the utmost caution.
According to the BGS, only tremors and earthquakes measuring 2.0 magnitude can be felt by people, which is thirty times stronger than that which requires fracking activity to stop.
Rees-Mogg has told the BBC that the government could review safe levels of seismic activity in the future for fracking to be able to occur.
Meanwhile, the Scottish and Welsh governments will not grant licences for the practice to be carried out in their countries and remain opposed to it.
Photo by paul silvan on Unsplash
