Bank of England Raises Interest Rates by Another Half a Point

With a new government and a new monarch, the central bank is trying to stop high inflation in the economy with a steady, predictable rate increase.

The Bank of England raised its key interest rate by half a percentage point to 2.25 percent on Thursday, disappointing some who thought it would have made a move of three-quarters of a point. In Britain, consumer prices rose 9.9% in August from a year earlier, but still near the fastest pace of inflation in four decades, as energy and food prices rose higher.

Policymakers decided to sell the bank's stock of British government bonds back to the market, entering a new territory after more than a decade of growing its balance sheet to provide easy money to lenders.

A new government is cutting taxes and freezing energy bills to make up for higher costs. Despite a tight labor market, a recession seems inevitable as investors question the country's economic outlook. The economy is expected to contract in the third quarter, following a drop in the second quarter which is thought to be a recession.

There was a rare three way split among the Bank of England's rate-setting committee. Five policymakers voted to increase rates by half a point, the same size move as the previous meeting, three wanted an even more aggressive increase of three-quarters of a point, and one person argued that economic activity was already weakened and inflation risks were waning.

Changes to government policy have altered the outlook for inflation. A new government took over this month. The government has decided to cap energy bills for both businesses and households. Inflation is expected to peak earlier and at a lower rate.

The inflation rate is expected to peak next month, according to the bank. The peak in inflation has been lowered due to the freeze on energy bills. The bank expects inflation to go up over the next few months before it starts to fall.

The mourning period for Queen Elizabeth II caused the meeting to be delayed.