Europe

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

The Bank of England today aggressively increased interest rates by the biggest amount since 1989 as the central bank wrestles with high inflation.

The decision to hike rates by 75 basis points aims to take some heat out of the U.K. economy to try to tame uncomfortably high price pressures on households and businesses. The bumper increase takes the base rate to 3 percent, the highest level since 2008.

This marks the largest increase in interest rates since 1989, except a short-lived episode on Black Wednesday in 1992 when the UK government dropped out of the European Exchange Rate Mechanism.

The BoE said further hikes may be needed “for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets” — but added it will respond “forcefully, as necessary” if inflation stays high.

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

The move is in keeping with large hikes undertaken by the European Central Bank and U.S. Federal Reserve as central banks battle to get inflation under control — although the Fed hinted yesterday it could slow down the pace of its increases.

The U.K. central bank this week also started to sell its stock of government bonds, built up since the 2008 financial crisis, to tighten up the amount of money pumped into the economy.  

But like other central banks, the BoE is juggling fears that rate hikes may weigh on growth. The jump in the base rate will be painful for some U.K. homeowners due to its knock-on impact on mortgage costs.

“The MPC’s latest projections described a very challenging outlook for the U.K. economy. It was expected to be in recession for a prolonged period and CPI inflation would remain elevated at over 10 percent in the near term,” the Bank said in a statement.

U.K. political turmoil has made the BoE’s balancing act harder by bludgeoning public finances. Former U.K. leader Liz Truss’ plans for unfunded tax cuts spooked investors and created a black hole in U.K. public finances, partly because her policies were seen as working against tightening monetary policy.

Still, the BoE’s position was made easier after new U.K. Prime Minister Rishi Sunak pledged to change course. But the details of a program of tax rises and spending cuts to plug the hole in government finances will only be unveiled on November 17.

Chancellor Jeremy Hunt said inflation was “the enemy” in a statement responding to the Bank’s rate hike. “The most important thing the British government can do right now is to restore stability, sort out our public finances, and get debt falling so that interest rate rises are kept as low as possible,” he said.

Cet article fait partie de POLITICO Pro.

Le service d’information exclusif des professionnels des affaires publiques, combinant notre journalisme de haut-niveau avec la force de nos solutions numériques


Des informations exclusives et spécialisées 


Une plateforme de veille politique personnalisable 


Un réseau unique en affaires publiques  




Source link

Related Articles

Back to top button