Bank of England announces major rate hike

The Bank of England has announced its biggest interest rate increase in three decades as it tries to beat back stubbornly high inflation.

The bank boosted its key rate by three-quarters of a percentage point on Thursday, to 3.0 per cent, after consumer price inflation returned to a 40-year high in September.

The aggressive move to prevent inflation from becoming embedded in the economy was in line with market expectations after a more cautious half-point increase six weeks ago.

The interest rate decision is the first since former prime minister Liz Truss' government announced 45 billion pounds ($A80 billion) of unfunded tax cuts that sparked turmoil on financial markets, pushed up mortgage costs and forced Truss from office after just six weeks.

Her successor, Rishi Sunak, has warned of spending cuts and tax increases as he seeks to undo the damage and show that the United Kingdom is committed to paying its bills.

The rate increase is the Bank of England's eighth in a row and the biggest since 1992.

It comes after the US Federal Reserve on Wednesday announced a fourth consecutive three-quarter point jump as central banks worldwide combat inflation that is eroding living standards and slowing economic growth.

The UK has struggled as wholesale gas prices increased fivefold in the 12 months through August.

While prices have dropped more than 50 per cent since the August peak, they are likely to rise again during the northern hemisphere winter heating season, worsening inflation.

The UK government sought to shield consumers with a cap on energy prices.

But after the turmoil caused by Truss' economic policies, Treasury chief Jeremy Hunt limited the price cap to six months instead of two years, ending on March 31.

Meanwhile, food prices have jumped 14.6 per cent in the year through September, led by the soaring cost of staples such as meat, bread, milk and eggs, the Office for National Statistics said.

That pushed consumer price inflation back to 10.1 per cent, the highest since early 1982 and equal to the level last reached in July.

Increases in the cost of tea bags, milk and sugar mean that even the "humble" cup of tea, which people across the country turn to when they need a break from the pressures of daily life, is getting more expensive, the British Retail Consortium said on Wednesday.

"While some supply chain costs are beginning to fall, this is more than offset by the cost of energy, meaning a difficult time ahead for retailers and households alike," Helen Dickinson, the consortium's chief executive, said.