Bank of England makes biggest interest rate hike in 30 years

The U.K. central bank may opt to raise rates by as much as 1 percentage point to show it is serious about tackling inflation

The Bank of England has announced its biggest interest rate increase in three decades as it tries to beat back stubbornly high inflation fuelled by Russia’s invasion of Ukraine and the disastrous economic policies of former Prime Minister Liz Truss.

The bank boosted its key rate by three-quarters of a percentage point on November 3, to 3%, after consumer price inflation returned to a 40-year high in September.

The aggressive move to prevent inflation from becoming embedded in the economy was in line with market expectations after a more cautious half-point increase six weeks ago.

The interest rate decision is the first since Ms. Truss’ government announced 45 billion pounds ($52 billion) of unfunded tax cuts that sparked turmoil on financial markets, pushed up mortgage costs and forced Ms. Truss from office after just six weeks.

Her successor, Rishi Sunak, has warned of spending cuts and tax increases as he seeks to undo the damage and show that Britain is committed to paying its bills.

The rate increase is the Bank of England’s eighth in a row and biggest since 1992. It comes after the U.S. Federal Reserve on November 2 announced a fourth consecutive three-quarter point jump as central banks worldwide tackle inflation that is eroding living standards and slowing economic growth.

Earlier in the day, Luke Bartholomew, senior economist at abrdn said, the U.K. central bank may opt to raise rates by as much as 1 percentage point to show it is serious about tackling inflation after facing criticism for being slow to react earlier this year.