Bank of England raises rate by 75 basis points, biggest hike in 33 years

LONDON — The Bank of England on Thursday raised interest rates by 75 basis points, its largest single hike since 1989, but struck a dovish tone as policymakers looked to temper market expectations for further aggressive monetary policy tightening.

The 75 basis point increase takes the Bank Rate to 3%, its eighth consecutive hike to the main lending rate.

Economists had anticipated the less hawkish tone from the central bank after the change in the U.K. government. New Prime Minister Rishi Sunak’s likely return to a more conventional fiscal policy after the brief and chaotic tenure of predecessor Liz Truss calmed the markets and meant that monetary and fiscal policy were no longer pulling in opposite directions.

However, inflation spiked to 10.1% in September and mortgage rates have risen sharply, placing further strain on households.

After its emergency bond-buying intervention last month prevented the possible collapse of the U.K.’s pension fund market, in light of plunging government bond prices caused in large party by Truss’ fiscal policy announcements, the Bank of England revived its plan to start selling gilts (U.K. sovereign bonds) — which commenced on Tuesday.