The Bank of England has increased UK interest rates by 0.75%, the biggest increase in 30 years. A year ago the interest rate was 0.1%, today it is 3%.
While the speed of the increase is certainly surprising by historical standards, the actual level of interest rate is not: before the 2008 global financial crisis, we would need to go all the way back to the 1950s to find interest rates so low. Indeed, the current 3% interest rate figure is only high compared to the past 14 years.
The Bank of England has increased interest rates as quickly as it has this year because of inflation. It has a clear mandate to maintain price stability. This has traditionally meant trying to keep inflation at around 2%, meaning that consumer prices, on average, should increase by 2% every year.
