Bank of England hikes rates by biggest increase in 30 years

The Bank of England on Thursday hiked its interest rate by three-quarters of a percentage point, to 3%, its biggest increase in three decades. 

The record high comes at a time when the central bank is grappling with a weak economy, soaring inflation and uncertainty about fiscal policy. Consumer price inflation is currently at a 40-year high in the United Kingdom. 

The rate increase is the Bank of England's eighth in a row and the biggest since 1992.

Fresh Prime Minister Rishi Sunak has pushed back the government's fiscal statement to November 17, with experts expecting tax rises and spending cuts which could potentially further weigh on growth. 

The interest rate hike is the first since Truss' government announced 45 billion pounds ($52 billion) of unfunded tax cuts, leading to turmoil on financial markets, pushing up mortgage costs and forcing Truss from office after just six weeks. 

Higher rates traditionally boost a country's currency by making investments there seem more attractive. 

However, the Bank of England has struggled to raise rates as high as the US Federal Reserve. The sterling plummeted after the Fed jacked up interest rates by 75 basis points on Friday. 

"The story is definitely moving from central banks pivoting to central bank policy divergence. The fundamentals in the US are certainly more robust and healthy than in Europe," Michael Quinn, senior trader at Monex Europe, said. "It's a pretty grim scenario for sterling at the moment."

According to futures market pricing, traders think it's almost certain that the Bank of England will raise rates by a lower 50 basis points in December. Yet they think there's a 58% chance the Federal Reserve will opt for another 75 basis points hike.

los/nm (AP, Reuters)