The Bank of England made its largest interest-rate increase in three decades in response to inflation that the central bank still expects to accelerate.
By a 7-to-2 vote, the U.K. central bank voted to lift rates by a three-quarters percentage point to 3%, as inflation hit a 40-year high in September. The central bank said inflation will further accelerate to 11% in the fourth quarter.
There was one vote, from Swati Dhingra, for a half-point increase, and another, from Silvana Tenreyro, for a quarter-point rise. Both are external members of the central bank’s monetary policy committee.
It was the first gyrations since the turmoil in financial markets that prompted the BOE to step in with a temporary bond purchase program.
“These had partly reflected global developments, although U.K.-specific factors had played a very significant role during this period,” the central bank dryly said of the market reaction to the tax-cut proposals produced by Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng, both of whom have resigned.
The U.K. central bank has now started a delayed bond selling program, and Chancellor Jeremy Hunt has backtracked on the tax-cut proposals as he readies a new “autumn statement” due in mid-November.
The pound dropped despite the central bank matching the Fed’s three-quarter point rate hike. That’s because of the comment that a majority felt rates would not have to go as high as the implied path in financial markets — that rates would peak at about 5.25%,
The pound
GBPUSD,
was weaker on the day at $1.1235 from $1.1392 — though much of that move came before the actual BOE decision — while the 2-year gilt
TMBMKGB-02Y,
rose 10 basis points to 3.08%.
