The Bank of England raised interest rates to 3%, increasing from 2.25% - the biggest increase since 1989, as it warned of a "very challenging" outlook for the economy.

Forecasts from the bank predict that the UK will be enduring 40-year-high inflation, reaching 11% during the incumbent quarter. However, Britain has already entered a recession that may last up to 2 years - even longer than what it endured during the 2008-09 financial crisis.

The bank's interest hike is the biggest in 33 years. However, it affirmed the predictions of many economists, according to a Reuters poll. 

In addition, the majority of the Monetary Policy Committee also said rates would need to increase, although it should not reach higher than 5.2%.

"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," said the Bank of England.

Just before Thursday's policy decision, markets expected rates to peak at around 4.75%.

"The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary," the MPC added.

As the economy slows down sharply, soaring inflation limits consumer spending on non-essential items. The central bank predicts that the UK entered a recession in the third quarter of 2022, and the recession will be ongoing until mid-2024.

Other Western banks are responding similarly to the high inflation rates, including the United States, which has hiked its interest rates for the fifth time in a row this week, raising the interest rate by 0.75 percentage points on Wednesday.