The Bank of England (BOE) on Thursday announced its biggest interest rate hike in 30 years, by raising the benchmark rate by 75 basis points (BPS). The announcement comes at a significant time as just a day prior to this; the US Federal Reserve also raised delivered another 75 BPS rate hike to ease the burdens on its economy.
As per an AP report, at this point, the main aim of BOE, US Fed and other central banks worldwide is to control the ‘stubbornly high inflation.’ This high inflation has been primarily fuelled by the Russia-Ukraine war and the economic policies of the United Kingdom (UK’s) former Prime Minister Liz Truss.
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The central bank of the country hiked its key rate by three-quarters of a percentage point, to 3 per cent after consumer price inflation came back to a 40-year high in September, as per AP. The report adds, “The aggressive move comes as the bank foresees a very challenging outlook for the UK economy, expecting it to be in recession for a prolonged period and inflation to stay high for the next year.”
This interest rate hike by BOE is one of the first ones ever since the former Liz Truss government announced 45 billion pounds of unfunded tax cuts that caused a havoc in financial markets. It not just zoomed the mortgage costs but also forced the former Prime Minister to resign as the economic conditions worsened. While the new PM Rishi Sunak has mentioned undoing of damage, he has also warned of spending cuts and tax increases.
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As per the AP report, the interest rate hike by BOE is the eighth one in a row and one of the biggest ones since 1992.
