Bank of England gives record interest rate hike to curb inflation

Sterling fell against the US dollar as futures forecast a further 25 basis point hike in interest rates to 2% for the next Bank of England meeting in September.

UK consumer price inflation reached its highest level in 40 years at 9.4% in June, more than four times the 2% target set by the central bank, triggering strikes and putting pressure on Boris Johnson’s eventual successor as the next British prime minister to offer more aid.

Truss, the favourite, said the Bank of England forecasts underlined the need for an emergency budget and tax cuts. Her rival, former Finance Minister Rishi Sunak, said controlling inflation was imperative for any future government.

The BoE had previously forecast inflation to peak above 11% and the British economy to grow almost nowhere before 2025.

In its new forecasts, the BoE predicts that inflation will fall back to 2% within two years, as the impact of the economy takes its toll on demand.

Bailey said the risks to the BoE’s outlook were “exceptionally large”.

There is no set course

The British central bank has raised interest rates six times since December, but Thursday’s move was the biggest since 1995.

Pressure on Governor Andrew Bailey and his colleagues to act with broader measures has intensified following recent large hikes by the US Federal Reserve (Fed), the European Central Bank (ECB) and other central banks.

These movements weakened the value of the pound, which can increase inflation.

The Bank of England repeated that it was prepared to act decisively if necessary to curb the most persistent inflationary pressures.

However, he stressed that there are “extremely large” uncertainties about the economy — which could make the slowdown more or less severe than his central forecasts — and that he will judge what his next moves should be as events unfold.

“Monetary policy is not on a set course,” the Bank of England said. “The scale, pace and timing of any further changes in bank interest rates will reflect the Committee’s assessment of the economic outlook and inflationary pressures.”

The Bank of England said it plans to start selling its huge stockpile of government bonds, with active sales of around £10bn a quarter, shortly after its next meeting in mid-September, with active sales of around £10bn. to quarter.