UK interest rates jump 0.75 per cent to 3 per cent

Andrew Bailey Governor of Bank of England

Andrew Bailey Governor of Bank of England Credit: Bank of England flickr

UK interest rates jump 0.75 per cent to 3 per cent, the largest increase since 1989 in a bid to reduce inflation which in September stood at 10.1 per cent.

The Bank of England Monetary Policy Committee (MCP) wasn’t unanimous in its decision announced on November 3 and although all nine members wanted to see a rise one wanted 0.25 per cent and another 0.5 per cent.

To some extent, the MCP was following on from recent increases by both America’s Federal Reserve and the European Central Bank but it was also making the decision without being fully aware of the contents of the Chancellor’s next budget which now falls on November 17.

The intention to increase interest rates is to make borrowing more expensive and therefore see less demand from both consumers and businesses which the MCP hopes will reduce the demand for certain goods and keep prices down.

The problem of course is that by reducing demand there is the risk of companies making fewer sales, investing less in growth and development and if the country topples over into long term recession, then jobs will be at risk and the Government will need more money for social support.

The reversal of the majority of the poorly considered tax cuts announced by former Chancellor Kwasi Kwarteng on September 23 has given the MCP some guidelines concerning the likely content of the November 17 statement but it does not rule out further interest rate hikes if it considers the UK economy needs them.

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