Bank of England raises interest rates by biggest hike in 30 years – POLITICO


The Bank of England today aggressively raised interest rates by the highest amount since 1989 as the central bank grapples with high inflation.

The decision to raise rates by 75 basis points is aimed at easing the UK economy to try to tame uncomfortably high pricing pressures on households and businesses. The exceptional increase takes the base rate to 3%, the highest level since 2008.

This is the biggest increase in interest rates since 1989, except for a short-lived episode on Black Wednesday in 1992, when the British government abandoned the European exchange rate mechanism.

The BoE said further hikes may be needed “for a sustained return of inflation to target, albeit at a lower peak than that set in financial markets” – but added that it will react “with force, if necessary” if inflation remains high.

The Bank’s Monetary Policy Committee voted in favor of the increase by a majority of 7 to 2.

The move is in line with major hikes undertaken by the European Central Bank and the US Federal Reserve as central banks battle to keep inflation under control – although the Fed hinted yesterday that it may slow the pace of its increases.

Britain’s central bank also this week began selling off its stock of government bonds, accumulated since the 2008 financial crisis, to tighten the amount of money pumped into the economy.

But like other central banks, the BoE is juggling fears that rate hikes will weigh on growth. The base rate jump will be painful for some UK homeowners because of its impact on mortgage costs.

“The latest MPC projections paint a very challenging outlook for the UK economy. It was expected to be in recession for an extended period and CPI inflation would remain elevated at over 10% in the near term,” the Bank said in a statement.

The political unrest in the United Kingdom has made the BoE’s balancing act more difficult by bludgeoning public finances. Former UK leader Liz Truss’s plans for unfunded tax cuts spooked investors and created a black hole in Britain’s public finances, in part because her policies were seen as running counter to tax tightening. monetary policy.

Still, the BoE’s position was eased after new British Prime Minister Rishi Sunak pledged to change course. But the details of a program of tax hikes and spending cuts to fill the hole in public finances will not be revealed until November 17.

Chancellor Jeremy Hunt said inflation was “the enemy” in a statement in response to the Bank’s rate hike. “The most important thing the UK government can do at this time is to restore stability, put our public finances in order and bring the debt down so that interest rate hikes are kept as low as possible,” did he declare.

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