In the wake of consumer price inflation rising to a 40-year high in September, the bank raised its benchmark interest rate by three-quarters of a percentage point on Thursday, to 3%. After a cautious half-point increase six weeks ago, the robust measure to prevent inflation from becoming entrenched in the economy was in line with market expectations.
The rate decision is the first since the Truss government promised an unfunded £52 billion tax cut, causing turmoil in financial markets, increasing mortgage rates and ultimately leading to Truss’ forced resignation after just six weeks in office. In an effort to repair the damage and prove that Britain was committed to paying its debts, its successor, Rishi Sunak, warned against budget cuts and tax increases.
The rate increase is the largest since 1992 and the ninth consecutive increase by the Bank of England. It comes on the heels of the US Federal Reserve’s fourth consecutive increase of three-quarters of a point on Wednesday as central banks around the world battle inflation that is lowering living standards and hampering economic development.