Bank of England increases interest rates to 3%

Written by Michael Griffiths

03/11/2022

The Bank of England (BoE) has increased interest rates by a further 0.75%, marking the largest single rise to rates for 33 years.

It takes the Bank’s base rate to 3%, which has climbed continuously through the year since it stood at 0.1% last December.

The decision also means this is the first time that interest rates have hit 3% since November 2008, in the midst of the financial crisis.

Today’s rise by the Monetary Policy Committee (MPC) at the BoE means it is now the eighth consecutive increase in interest rates. At its latest meeting, the MPC voted by a majority of seven to two to increase the base rate by 0.75%, to 3%. One member voted for a 0.5% rise, to 2.75%, while another member would have preferred to increase the rate by 0.25%, to 2.5%.

It is the first rates decision since the former Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng announced their mini-Budget which caused turmoil across financial markets and allowed mortgage rates to soar.

The BoE said that since its previous MPC meeting, there have been “significant developments in fiscal policy”.

In its statement, the Bank also revealed that the majority of the Committee has judges that should the economy evolve broadly in line with its latest Monetary Policy Report projections, further increases to its base rate “may be required” for a sustainable return to its 2% inflation target.

Reacting to the move by the Bank, head of rates at Aviva Investors, Edward Hutchings, said: “The BoE duly delivered on financial markets expectations of a 0.75% hike. This will most likely mark the peak in pace of tightening, especially with the Bank highlighting financial markets are pricing too much too soon.

“Next up for the UK will see the focus shift to the Autumn Statement to see what the Chancellor’s fiscal plans are, but in the meantime the headlines point to Gilts being relatively more supported, however the currency less so.”

Related Articles