The Bank of England has raised interest rates by 0.75 percentage points to 3 per cent in its most forceful act to tame inflation for 30 years.
Forecasting a “very challenging outlook” with a long recession ahead, the central bank, however, issued unusually strong guidance that interest rates would not need to rise much further to bring inflation back to its 2 per cent target.
The BoE’s Monetary Policy Committee said market expectations that interest rates would peak at 5.25 per cent were too high.
The majority of the committee, it said, believed that “further increases” might be required “for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets”.
The BoE’s decision matched the US Federal Reserve’s 0.75 percentage point rise on Wednesday and an identical move by the European Central Bank last week. Raising rates to 3 per cent took the UK official interest rate to its highest level since late 2008. It is the largest increase since 1989, apart from a swiftly reversed rise on September 16 1992, known as Black Wednesday.
Seven of the nine MPC members voted for the three-quarter point increase, saying in the minutes that “a larger increase” at the meeting “would help to bring inflation back to the 2 per cent target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening later”.
More to follow . . .
