Bank of England poised for another big interest rate hike

LONDON (AP) — Britain’s central bank is under pressure make another big interest rate hike Thursday, with inflation outpacing other major economies but the U.S. Federal Reserve and other banks acting more aggressively to get prices under control.

The Bank of England hiked its benchmark rate last month by half a percentage point to 1.75%, the biggest increase in 27 years, and it's expected to at least match that in its latest decision, which was delayed a week during the mourning period for Queen Elizabeth II.

Faced with a slumping currency, tight labor market and inflation near its highest in four decades, officials may feel the need to act more aggressively as rising food and energy prices fuel a cost-of-living crisis that is considered the worst in a generation.

But giving pause could be economic relief measures from new Prime Minister Liz Truss’ government that are expected to ease inflation short term.

The meeting will “tell us not only how worried policymakers are about the slide in sterling and other UK markets, but also how the government’s decision to cap household/business energy prices will translate into monetary policy," said James Smith, developed markets economist with ING bank.

Some economists think a bigger three-quarter-point increase is on the cards. The bank hasn’t made such a big move since 1989.

“But we’d caution against assuming UK policymakers will ramp up the pace of rate hikes simply because that’s what everyone else is doing — or indeed because that’s what markets are pricing," Smith said.

Surging inflation is a worry for the bank because it eats away at consumers' purchasing power. The traditional tool to combat inflation is raising interest rates, which reduces demand and therefore prices, by making it more expensive to borrow money.

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