The Bank of England has aggressively raised interest rates by the largest amount since 1989, Politico reports.
The decision to raise rates by 75 basis points is intended to take some pressure off the U.K. economy and try to tame uncomfortably high price pressures on households and businesses. The increase raises the prime rate to 3 percent, the highest level since 2008.
This marks the biggest rise in interest rates since 1989, except for a brief black Wednesday episode in 1992, when the U.K. government withdrew from the European Exchange Rate Mechanism.
The Bank of England said that further hikes may be needed to bring inflation back to target levels on a sustainable basis, noting that it will respond strongly, as necessary, if inflation remains high.
The U.K. central bank this week also began selling its bundle of government bonds accumulated after the 2008 financial crisis to reduce the amount of money pumped into the economy.
But like other central banks, the Bank of England fears that a rate hike could affect economic growth. A hike in the prime rate would be painful for some British homeowners because of its direct effect on mortgage costs.
The latest forecasts describe a very challenging outlook for the U.K. economy. It was expected to be in recession for an extended period and CPI inflation was expected to remain elevated at more than 10 percent in the near term, the bank said in a statement.
