British Interest Rates Rise Again as Pound Weakens

Britain raised interest rates Monday for the second time in five days as a weaker pound made it possible for the government to act against inflation.

The Bank of England said it raised its money market lending rate by half a percentage point to 8.5%. This was a signal that commercial banks should make a similar increase in their key base lending rates, the equivalent of U.S. prime rates.

Barclays Bank PLC, one of the largest, led the way in announcing that it was following the central bank lead. Midland Bank followed suit.

Rates were put up to 8% from 7.5% on Thursday.

They had earlier been taken down to this 10-year low to try to make pound-based assets less attractive to international investors and brake a rise in the value of the pound, which was threatening Britain’s export earnings.

But Prime Minister Margaret Thatcher’s government took that action reluctantly, worried that yet cheaper money would fuel a credit-driven consumer spending boom, worsen the balance-of-payments deficit and push up inflation from the present 3.9% rate.

Now, however, speculative money is deserting the pound for higher yields in the dollar and other currencies, making it possible for interest rates to edge back up.