When the Queen died two weeks ago, it was for her Bank of England immediately clear: the next meeting must be postponed. During the national mourning period, a key interest rate decision was out of the question. The session took place three days after the state funeral of Queen Elizabeth II. And it happened as many experts had expected before the Queen's death: The Bank of England raised interest rates on Thursday for the seventh time in a row, from 1.75 to 2.25 percent. The last time the interest rate was this high was in 2008 at the beginning of the financial crisis.
However, the decision to raise interest rates by 0.5 percentage points was fairly close. Five members of the nine-strong Monetary Policy Committee, including Fed Chairman Andrew Bailey, voted in favor of this step. One member voted for a rate hike of 0.25 percentage points, three representatives wanted to follow the US Federal Reserve's example on Wednesday and voted for 0.75 percentage points.
With the new key interest rate of 2.25 percent, the British central bank wants to get high inflation under control. In the United Kingdom, the inflation rate is currently 9.9 percent - higher than in any other G7 country. The Bank of England said it would "continue to respond vigorously if necessary".
At least there seems to be hope. According to the central bank, the relief package decided by the new government should mean that inflation will no longer rise as rapidly. Shortly before the death of the Queen, Prime Minister Liz Truss presented a huge aid package that would help her compatriots through the energy crisis should come. Estimated cost: 150 billion pounds, so the equivalent of 173 billion euros.
In Great Britain there is already a price cap for electricity and gas
The heart of the relief package is massive government intervention. The government freezes electricity and gas prices for private households for two years. The price cap set by the government will be £2,500 from October. This sum refers to the annual energy consumption of an average household with two to three people. And that means in numbers: 2,900 kilowatt hours of electricity and 12,000 kilowatt hours of gas per year.
The price cap does not protect those who consume more from an even higher bill, but it at least ensures that the energy costs remain within a certain range. In addition, every British household gets a one-off energy cost discount of 400 pounds (about 460 euros). Truss' predecessor Boris Johnson had already announced this in the spring. Companies should also be relieved, the details are currently being worked out in the Ministry of Economic Affairs.
Like her predecessor, the new Prime Minister wants to make the country as independent as possible from foreign energy supplies. Truss therefore not only wants to build new offshore wind farms and nuclear power plants, but also expand oil production in the North Sea. The new government is also using an extremely controversial technique to extract oil and gas: fracking.
For Truss's Conservative Party, this is a radical about-face. In their election manifesto, the Tories under Johnson committed to a fracking moratorium that was imposed in 2019. But the new government wants nothing more to do with that. "In light of Putin's illegal invasion of Ukraine and the weaponization of energy, strengthening our energy security is a top priority," Economy Secretary Jacob Rees-Mogg said on Thursday.
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If the government has its way, Britain should become a net energy exporter by 2040. "To do that, we need to explore all the opportunities available to us through solar, wind, oil and gas," said Rees-Mogg. The lifting of the fracking moratorium allows the search for sources of domestic gas. However, the Ministry of Economic Affairs emphasized that test drilling would only be permitted in regions where there was "local support".
There is no question that the energy crisis is at the center of Truss' economic policy agenda. The Prime Minister subordinates all measures that are now being taken to a clear goal: growth. Truss and her finance minister, Kwasi Kwarteng, are convinced that this goal can best be achieved if the tax burden is as low as possible. And so Kwarteng will announce further relief on Friday. According to reports, two measures by the Johnson government are to be reversed. Social security contributions are to fall again and the planned increase in corporate income tax is to be cancelled.
Truss is convinced that growth is best achieved when the state interferes as little as possible in economic life. And that also means for Truss that she wants to abolish regulations that have been in force in Great Britain since the days of EU membership, above all the upper limit for banker bonuses. The government hopes that this will increase the attractiveness of the financial center London. The only thing is: According to reports, the major British banks have not pushed for the abolition of the bonus limit. It looks like Truss is all about showing the world what's possible post-Brexit.