Bank of England raises interest rate to 3.00 percent

That’s the biggest hike since 1989. It’s battling a surge in inflation from rising energy prices as the UK economy slides into recession. The key interest rate thus rises to 3.00 percent. Economists and stockbrokers had expected this step. For eight straight meetings, the central bank has now tightened monetary policy to rein in inflation.

However, the central bank’s Monetary Policy Committee (MPC) signaled that it does not expect borrowing costs to rise as much as investors are expecting. “The latest MPC projections describe a very challenging outlook for the UK economy,” the BoE said in a statement. “The country is expected to be in recession for an extended period of time.”

The 75 basis point hike was approved by a majority of seven votes to two. Councilor Swati Dhingra voted for a 50-point increase to 2.75 percent, and Councilor Silvana Tenreyro voted for just a 25-point increase to 2.50 percent.

A key question for the BoE is whether Prime Minister Rishi Sunak’s new government is planning tax hikes and spending cuts soon, which would drain the economy and dampen inflationary pressures. Such measures would mitigate the need for further rate hikes.

By Paul Hannon and Andreas Plecko

LONDON (Dow Jones)

Image sources: Gil C / Shutterstock.com, shanneong / Shutterstock.com