Bank of England raises key interest rate to a new 15-year high to fight inflation

LONDON: The Bank of England raised its main interest rate Thursday to a fresh 15-year high as it tries to bring down persistently high inflation.

The quarter-percentage-point increase to 5.25%, which was widely anticipated by economists, was the central bank's 14th hike in a row.

There had been fears, certainly among hard-pressed households and businesses, that the bank would repeat its outsized half-point increase from June. But figures last month showing that inflation fell more than anticipated to 7.9% eased the pressure to act as aggressively again.

Higher interest rates help dampen inflation — but also economic growth — by making it more expensive for consumers and businesses to borrow to buy homes, cars or equipment.

Two of the nine members of the rate-setting Monetary Policy Committee actually voted for a half-point increase, while six backed the quarter-point rise and one opted to keep rates unchanged.

With inflation four times the bank's 2% target, the bank is expected to raise interest rates again over the coming months. Economists said the interest rate outlook will depend largely on how fast inflation comes down.

The policymakers also indicated that interest rates would need to stay higher for longer to bring inflation back down to its 2% target.

In forecasts accompanying the decision, the bank said inflation is set to drop to 4.9% by the end of the year, with food price rises set to moderate.

READ ALSO:

• Britain officially joins an Asia-Pacific trade group that includes Japan, 10 other nations
• Bank of England says UK banks are resilient enough to offer struggling households support
• UK inflation falls to lowest level in over a year but food prices keep decline in check