The Bank of England (BoE) has raised interest rates by 0.25% to 4%, as it attempts to contain rising inflation driven by higher energy prices and disruption to global supplies.
The Monetary Policy Committee (MPC) voted eight to one in favour of increasing the base rate to 4%. One member backed a larger half-point increase, which would have taken rates to 4.25%.
The increase, the first since August 2023, was widely expected and takes the base rate higher as inflation, currently at 3.5%, is forecast to reach around 5% by mid-2027. The central bank said the conflict in the Middle East had disrupted energy transportation and supplies, pushing up fuel costs and household utility bills.
The central bank further warned that higher energy costs could feed through into wider prices as businesses pass on increased expenses, although there is currently little evidence of significant knock-on effects on prices and wages.
Governor Andrew Bailey said: "There is now enough inflationary pressure in the pipeline caused by the rise in energy prices that an increase in bank rate is warranted.
"Today’s increase shouldn’t be seen as the first in an inevitable long sequence of hikes. But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase. The MPC will judge the outlook at each meeting, responding as necessary to bring inflation sustainably back to our 2% target."
