The Bank of England Thursday raised its benchmark interest rates by 50 basis points to 2.25 percent, disappointing investors who had largely bet on an even more aggressive hike.
The Bank’s Monetary Policy Committee was split on the decision. According to the statement “five members voted to raise Bank Rate by 0.5 percentage points, three members preferred to increase Bank Rate by 0.75 percentage points, to 2.5 percent, and one member preferred to increase Bank Rate by 0.25 percentage points, to 2 percent.”
The BoE’s announcement follows on the heels of the third 75-basis point hike by the U.S. Federal Reserve. This increased the risk of the pound falling further and, in turn, pushing up inflation via dollar-denominated energy imports.
Ahead of the announcement, the pound had fallen to levels not seen since 1985 — the year Mikhail Gorbachev became Soviet leader.
While the BoE was the first major central bank to lift interest rates in this cycle, but more recently others have opted for bolder steps. Earlier in the day, the Swiss National Bank raised rates by 75 basis points, as did the European Central Bank earlier this month. The Swedish Riksbank surprised with a whopping full one percentage point hike.
The Committee also voted unanimously to reduce the stock of purchased UK government bonds, financed by the issuance of central bank reserves, by £80 billion over the next 12 months, to a total of £758 billion, in line with the strategy set out in the minutes of the August MPC meeting.
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