The Bank of England has raised interest rates to 1.25%, the highest rate in 13 years.
The bank’s Monetary Policy Committee announced the decision on Thursday in a bid to curb rising inflation and address weak economic growth.
This is the fifth increase in a row and brings the policy rate from 1% to 1.25%.
Inflation rose to 9% in the 12 months to April, up 2% since March.
Higher fuel and food prices caused by the war in Ukraine have also pushed up the cost of living.
“The size, pace and timing of further interest rate hikes will reflect the Committee’s views on the economic outlook and inflationary pressures,” the Bank of England said in a statement.
“The Committee will be particularly vigilant for signs of prolonged inflationary pressures and will respond vigorously as appropriate.”
The Bank of England’s decision to raise interest rates to 1.25% lags behind the Federal Reserve’s action on Wednesday.
The Fed raised interest rates from 1.5% to 1.75% this week.
“It is quickly becoming apparent that more radical action is needed for the Bank of England to establish some sense of stability as tinkering with the margins just isn’t enough,” said Michael Hewson, chief market analyst at CMC Markets UK in a note to Customers.
Three of the nine-member monetary policy committees voted for an even bigger rate hike on Thursday, arguing rates should rise as high as 1.5%.
“Given persistent signs of robust cost and price pressures, including the current tight labor market, and the risk that these pressures will continue, the committee voted to raise the policy rate by 0.25 percentage point,” it said.
David Bharier, Head of Research at the British Chambers of Commerce, commented on the rate hike: “While expected, the decision to raise interest rates will continue to unnerve businesses amid a weakening economic outlook, rising cost pressures and labor shortages.
“The hike signals the bank’s intention to fight inflation, but companies have been sounding the alarm about rising prices since early 2021, and a higher interest rate is unlikely to address many of the global causes.”