- The rate increase is the Bank of England’s eighth in a row and the biggest since 1992.
- BoE states it expects inflation to peak at 11%.
- The rise in inflation rate is mainly owing to Truss’ failed economic plan causing the pound to reach a record low against the dollar
In an attempt to tackle increasing inflation, the Bank of England has raised its interest by 75 basis points to 3.0%, its highest in 14 years.
The rate increase is the Bank of England’s eighth in a row and the biggest since 1992. The latest move follows the U.S. Federal Reserve on Wednesday, increasing its benchmark lending rate to a range of 3.75% to 4%, the highest since January 2008.
The Bank of England, while making the announcement, warned the U.K. could be on course for the longest recession since reliable records began in the 1920s. This comes amid reports that U.K.’s inflation rate is reaching concerning levels. BoE states it expects inflation to peak at 11%.
It further adds that it believes prices will drop sharply from the middle of next year, falling to around 5% by the end of 2023. In two years, the Bank of England projects it will have fallen to 1.4%.
According to the British Retail Consortium, U.K.’s shop-price inflation accelerated to 6.6% in October, a record for the index, which started 17 years ago, and up from 5.7% in September. The Office for National Statistics states that food prices have jumped 14.6% through September, led by the soaring cost of staples, including bread, milk, and eggs. The soaring food prices pushed consumer price inflation(CPI) back to 10.1%, the highest since early 1982 and equal to the level last reached in July.
The rise in inflation rate is mainly owing to Truss’ failed economic plan causing the pound to reach a record low against the dollar, forcing the Bank of England to boost interest rates higher than expected. The British pound sank sharply against the dollar following BoE’s announcement and is currently trading at 1.12 USD
BOE Governor Andrew Bailey said in a press conference following the announcement it was “important because, for instance, it means that the rates of new fixed-term mortgages should not need to rise as they have done.”
The Bank of England‘s interest rate spike can prove destructive for cryptocurrencies since higher interest rates generally trigger a lower appetite for high-risk/high-return assets such as cryptocurrencies. Some crypto advocates also believe that allowing central bankers to influence the economy through monetary policies, namely quantitative easing, leads to disaster.
Experts also believe that rising interest rates will always trigger a period of crypto market volatility. Increasing interest rates could make individual investors, who make up a disproportionate cross-section of the crypto market, even more likely to pull their funds out of investments altogether.