UK announces biggest interest rate hike in 33 years to fight inflation

The Bank of England raised interest rates by 0.75 percentage point on Thursday, the biggest increase in 33 years, as it tries to contain rising inflation even as the UK economy slides into recession.

The central bank made its eighth interest rate hike in less than a year, taking its benchmark rate to 3%, the highest since November 2008.

The increase coincides with moves made by the US Federal Reserve on Wednesday and the European Central Bank last week.

Since the last Bank of England meeting, the UK financial markets have experienced an unprecedented period of turmoil and the outlook for the economy has deteriorated.

Former Prime Minister Liz Truss’s “mini” budget at the end of September – with its pledge of 45 billion pounds ($51.6 billion) of unfunded tax cuts – sent the pound down, down bond prices , caused chaos in mortgage markets and prompted emergency government intervention to rescue pension funds from insolvency.

While Truss’ tax-cut plans have largely been abandoned, restoring calm to markets and lowering medium-term inflation expectations, rising food and energy costs are keeping prices high. The annual rate of inflation rose to 10.1% in September from 9.9% in August, returning to the 40-year high reached in July.

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Central bank policymakers are now awaiting the government’s budget announcement on November 17 for more details on spending plans and fiscal policies, which could influence what happens to inflation next year.

Despite the recent bond market turmoil, the Bank of England this week pressed ahead with plans to reduce its balance sheet, selling £750m ($859m) of short-term government debt on Tuesday.

In a sign of renewed confidence in the UK, investors have put about 2.45 billion pounds ($2.8 billion) into offerings for the bonds, Reuters reported.