Bank of England Raises Key Rate

It looks like inflation continues to heat up in England.

Bank of England raises key rate to 5.75%: U.K. rates hit six-year high; further hike may be on the cards

The Bank of England elected to raise interest rates for the fifth time in under a year Thursday, with rates hitting a six-year high as the bank continues to fight above-target inflation.

The central bank's Monetary Policy Committee hiked its key rate by a quarter-point to 5.75%, in line with the forecast of most economists. The move followed a tight vote at the committee's last meeting in June, which saw Governor Mervyn King's call to raise rates defeated in a five-to-four vote.

This now raises the English discount rate to 0.50% higher than the US rate. Look for the dollar to depreciate relative to the pound. That will make U.S. goods relatively cheaper to buy and thus improve the U.S. export/import picture.

I'd keep a close eye on this situation. Five increases in less than 12 months is the equivalent of locking up your brakes on the expressway. The Bank of England must be pretty spooked about the core inflation numbers and productivity numbers they are seeing.