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Bank of England prepares for the biggest rate hike since 1989

The Bank of England is on track to raise interest rates by three-quarters of a percentage point to 3% on Thursday, its biggest increase

Bank of England prepares for the biggest rate hike since 1989
Yazar: Charles Porter

Yayınlanma: 3 Kasım 2022 07:08

Güncellenme: 28 Mart 2024 05:03

Bank of England prepares for the biggest rate hike since 1989

The Bank of England is on track to raise interest rates by three-quarters of a percentage point to 3% on Thursday, its biggest increase since 1989, as it battles the highest inflation in 40 years.

The BoE has faced political and financial market turmoil since its last rate hike on September 22, a day before the government of former Prime Minister Liz Truss launched a 45 billion pound ($52 billion) package of unfunded tax cuts. This policy was intended to avert recession and spur long-term growth but instead led to sterling hitting a record low against the US dollar, the BoE being forced to prop up the bond market and Truss' resignation. Markets are now more stable and the British government's borrowing costs have generally returned to their levels before the turmoil. On Tuesday, the BoE was able to start selling bonds from its 838 billion pound stock of quantitative easing. But the UK economy's fundamental problems persist. Consumer price inflation hit a 40-year high of 10.1% in September and is likely to have risen further as energy prices rose last month, despite costly subsidies. At the same time, the economy is slowing sharply. Purchasing managers data fell in October to its weakest level since January 2021, when the economy was mired in the COVID-19 lockdown. "The BoE faces the incredibly difficult balancing act of orchestrating big rate hikes in a sluggish economy," said Shweta Singh, senior economist at British fund manager Cardano. Forty-six of 53 economists polled by Reuters expected the BoE to raise rates to 3% this month. Other Western central banks face similar challenges. Inflation has soared since Russia's invasion of Ukraine in February due to labor shortages, COVID-19 supply chain bottlenecks and - in Europe's case - rising energy bills. The US Federal Reserve raised its key interest rate by 0.75 percentage points to a range of 3.75% to 4.0% on Wednesday and the European Central Bank raised its deposit rate by the same amount to 1.5% last week. However, the Fed said future rate hikes could come in smaller steps. Source: Reuters Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!
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