The Bank of England's base rate is now the highest since 2008 as inflation continues to soar higher.

UK inflation was reported at a whopping 9.9% in August, way above the 2% target rate set by the Bank of England. As a result of the high inflation, five of the nine members Monetary Policy Committee today voted for another 50-basis point rise to a 2.25% base rate, the highest rate since 2008.  The committee has also decided to reduce UK bond holding by £80bn over the next 12 months all in the hope of lowering the high inflation. The UK is not the country raising interest rates. Earlier in the month, the ECB raised rates by 75 basis points and the Federal Reserve did the same thing this week raising rates by 75 basis points.

This is now the seventh consistent rise as oil and gas prices continue to be volatile blurring the future of the UK. In the short term, Lizz Truss, the new Conservative Prime Minister, did announce a wave of rescue packages for Residential households and businesses, but this again asks the question, what’s the long-term impact of this because the money must come from somewhere…

Q3 growth for the UK has also seen some downside and the BoE have suggested that consumer spending may have now peaked this quarter. There have also been some indications of weakening demand for labour as well, however over the summer period the labour market in general tightened. CPI figures have reduced however as in July the figure was 10.1% suggesting that there is a minor slowdown in inflation, but far from the 2% target. The winter period is going to be very interesting for the UK and Europe as Russia does have the tactical advance over the west with Nordstream.

Sterling continues to fall against the dollar and the recent pair reacted very little when the base rate was announced today as the move was somewhat priced in, analysts were expecting an initial rise of 75bp so a 50bp rise could see the pound soften more in the short term. The pound is down 16.4% Year to date and currently shows no signs of recovery just yet.