Bank of England hikes interest rates to 3%, highest in 30 years
The bank increased its benchmark interest rate by three-quarters of a percentage point on Thursday to 3%.
In an effort to combat the stubbornly high inflation brought on by Russia’s invasion of Ukraine and the terrible economic policies of former Prime Minister Liz Truss, the Bank of England has announced its largest interest rate increase in three decades.
Following the rise of consumer price inflation to a 40-year high in September, the bank increased its benchmark interest rate by three-quarters of a percentage point on Thursday to 3%. After a more cautious half-point hike six weeks earlier, the forceful action to prevent inflation from becoming ingrained in the economy was consistent with market expectations.
The interest rate decision is the first since Truss’ government promised unfunded tax cuts of £52 billion, which caused turbulence in the financial markets, increased mortgage rates, and ultimately led to Truss’ forced resignation after only six weeks in office. In an effort to repair the harm and demonstrate that Britain is dedicated to paying its debts, her successor, Rishi Sunak, has warned of budget reductions and tax rises.
The rate increase is the largest since 1992 and the ninth consecutive increase by the Bank of England. It follows the United States. A fourth consecutive three-quarter point increase was announced by the Federal Reserve on Wednesday as central banks around the world battle inflation that is lowering living standards and hampering economic development.
After initially believing that foreign causes outside of their control were driving price increases, central banks have failed to manage inflation. As it became apparent that inflation was getting ingrained in the economy and bleeding through to increased borrowing prices and demands for greater pay, their response intensified in recent months.
Due to the disruption of natural gas, grain, and cooking oil imports, the war in Ukraine raised food and energy costs globally. As the world economy started to recover from the COVID-19 outbreak last year, inflation picked up speed.