THE Bank of England has increased interest rates by the highest single jump in 25 years. The Governor, Andrew Bailey, says he is trying to combat runaway inflation even though he admits that the 0.5% hike to 1.75% will do little to reduce prices.

Indeed, he shocked the Government and economists by forecasting inflation rising to 13% this winter and a recession that will last right through 2023. It is back to 1974 and hyper-stagflation.

Normally central banks cut interest rates before a recession to boost spending, so why is the bank pouring water on a fire that is going out?

Well, mainly because that's what America is doing. US rates have been going up even faster than here. The Bank may also be trying to anticipate, and perhaps curb inflationary tax cuts threatened by the Tory leadership front runner Liz Truss. Indeed, one of her advisers, the economist Patrick Minford, said her policies could boost rates to 5% or even 7%. This could be a self-fulfilling prophecy.

Minford said this was a good thing and that rates have been too low for too long. And in one sense he is right.

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Borrowing costs were slashed in 2009 to the lowest level since the creation of the Bank of England in 1694. Along with money printing through quantitative easing, this was meant to be a temporary measure to prevent the collapse of the financial system. No one meant it to be permanent. But like crack, cheap money is addictive.

Near zero interest rates benefit people with assets, mainly houses. People on modest incomes could afford humongous mortgages when rates were less than 2%. The older generation of property owners became suddenly wealthy as house prices rocketed creating grotesque wealth inequality. Britain now has 2.5 million millionaires, most of them living in London.

People with shares also coined it. Even “non-fungible” assets, like Bitcoin, boomed. But now that it comes to unwinding this splurge the Bank has a headache.

The average monthly home loan payment for a new first-time buyer was £813 a month in January. The latest rise would push up the monthly payment figure to more than £1,000.

Most families won't feel this immediately because they are on fixed rates, but the crunch is coming.

The Bank is trying to correct for monetary mismanagement on an epic scale under the worst possible world market conditions and with a war in Europe. It should have gradually increased interest rates as the economy recovered from the financial crisis. The Bank of England is independent and has only one job to do: keep inflation around 2%. Not six times that.

It is at times like this you realise that bankers are no better than the rest of us. They are prone to group think, short-termism and self-delusion. They couldn’t resist the sugar rush of cheap money and now there's nothing left in the bank but apologies.

The SNP apparently intend the Bank of England to continue in control of monetary policy for at least a decade after independence. That isn't looking like such a good idea.