The British central bank is taking action to combat high inflation with the largest rate hike in its recent history. On Thursday, it raised the key interest rate by half a percentage point to 1.75 percent – more than ever since the Bank of England (BoE) gained independence from politics in 1997.
Financial markets were prepared for the BoE to follow the lead of the European Central Bank (ECB). This recently initiated its turnaround in interest rates with such a large step.
Although the monetary watchdogs in London completed their monetary policy turnaround in December 2021, they have only taken small steps so far. With a clear majority of 8:1 votes in the monetary policy committee, they now decided in favor of a strong hike.
Inflation beyond the nine percent
The monetary authorities were under pressure. Fueled by skyrocketing energy costs and supply chain problems, consumer prices on the island had recently soared 9.4 percent – a 40-year high.
According to experts, the surge in inflation in the United Kingdom is likely to last longer than in many other economies. The country’s exit from the European Union also plays a role, which affects trade, among other things.
