London CNN Business —
The Bank of England raised interest rates by three-quarters of a percentage point on Thursday, the biggest hike in 33 years, as it tries to stem rising inflation even as the UK economy slides towards recession.
The central bank made its eighth rate hike in less than a year, raising interest rates to 3%, the highest since November 2008.
The huge rate hike comes in line with actions by the US Federal Reserve on Wednesday and the European Central Bank last week.
Since the last Bank of England meeting, UK financial markets have endured a period of unprecedented turbulence and the outlook for the economy has deteriorated.
Former Prime Minister Liz Truss’ ‘mini’ budget at the end of September – with a promise of £45bn ($51.6bn) in unfunded tax cuts – tumbled the pound, plunging bond prices, unleashing chaos on the mortgage markets and triggered emergency intervention by the Bank of England to save pension funds from insolvency.
While Truss’ tax cut plans have since been largely abandoned, markets have calmed down and medium-term inflation expectations have eased, rising food and energy costs are keeping prices high. Annual inflation rose to 10.1% in September from 9.9% in August, returning to a 40-year high in July.
Central bank policy makers are now awaiting the government’s budget announcement on November 17th for more details on spending plans and fiscal policies that may influence what happens to inflation next year.
Despite the recent bond market turmoil, the Bank of England pushed ahead with plans to shrink its balance sheet this week, selling 750 million pounds ($859 million) of short-dated government bonds on Tuesday. Investors have placed bids worth around £2.45 billion ($2.8 billion) for the bonds in a sign of renewed confidence in the UK, Portal reported.
— This is an evolving story and will be updated.