Audio By Carbonatix
The Bank of England raised interest rates by three-quarters of a percentage point on Thursday, the biggest hike in 33 years, as it tries to contain soaring inflation even as the UK economy slides towards recession.
The central bank made its eighth interest rate hike in less than a year, taking its benchmark rate to 3%, the highest it has been since November 2008.
The huge hike matches moves made by the US Federal Reserve on Wednesday and the European Central Bank last week.
Since the Bank of England’s last meeting, UK financial markets have been through a period of unprecedented turbulence and the outlook for the economy has deteriorated.
Former Prime Minister Liz Truss’ “mini” budget in late September — with its promise of £45 billion ($51.6 billion) of unfunded tax cuts — crashed the pound, collapsed bond prices, sparked mayhem in mortgage markets and prompted an emergency intervention by the Bank of England to save pension funds from insolvency.
While Truss’ tax-cutting plans have since largely been ditched, restoring calm to markets and easing expectations for inflation in the medium term, rising food and energy costs are keeping prices high. The annual rate of inflation rose to 10.1% in September, from 9.9% in August, returning to the 40-year high hit in July.
Central bank policymakers are now waiting for the government’s budget announcement on November 17 for more details on spending plans and tax policies, which could influence what happens to inflation next year.
Despite recent turmoil in the bond market, the Bank of England pushed ahead this week with plans to shrink its balance sheet, selling ÂŁ750 million ($859 million) of short-term government debt on Tuesday. In a sign of renewed confidence in the United Kingdom, investors placed about ÂŁ2.45 billion ($2.8 billion) worth of bids for the bonds, Reuters reported.
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