Bank of England raises interest rate amid soaring inflation

The UK's central bank increased bank rate to 5.25% from 5%, lifting it to its highest level since February 2008

- Paul Hannon

The Bank of England on Thursday raised its key interest rate for the 14th time in a row, and said it may do so again as it tries to cool the fastest rise in consumer prices in the Group of Seven advanced democracies.

The UK's central bank increased its Bank rate to 5.25% from 5%, lifting it to its highest level since February 2008 and matching recent moves by both the Federal Reserve and the European Central Bank.

Like the US, the UK's economy has proved surprisingly resilient over the past year, defying expectations that it would slip into recession following the surge in food and energy prices that followed Russia's invasion of Ukraine. However, economists warn that rising borrowing costs may yet push it into contraction.

The BOE began to raise its key interest rate before the Fed and the ECB, but the UK's inflation rate has fallen less rapidly than that of either the US or the eurozone. In June, UK consumer prices were 7.9% higher than a year earlier, compared with 5.5% in the eurozone and 3% in the US. With further to go before it can be sure that inflation will fall to its 2% target, the BOE said it would raise its key interest rate again if there are signs that big wage increases are set to lead to additional price rises, particularly in the dominant services sector.

"I don't think it is time to declare it's all over, and we're sticking where we are," said BOE Gov Andrew Bailey. "If we get more evidence of more persistent inflation, then we will have to react to that." The BOE signaled that it may be in the final stages of its long series of rate rises. The central bank forecast that inflation would be below its 2% target from mid-2025 if it were to raise its key rate to 6%, which financial markets viewed as the likely peak before Thursday's announcement.