The Bank of England has raised its key interest rate by 25 basis points to 4% as soaring energy prices push inflation higher across the United Kingdom (U.K.).
It is the first interest rate increase from the British central bank in more than three years.
The rate hike by the Bank of England was widely anticipated by economists and financial markets.
The U.S. Federal Reserve, Bank of Canada, and other leading central banks have each raised interest rates in recent months to combat stubborn inflation.
The majority of the Bank of England’s Monetary Policy Committee voted for the quarter-point rate hike, with the motion passing by eight votes to one.
The lone dissenting member of the committee voted to raise interest rates even more aggressively, by 50 basis points to 4.25%.
In announcing the rate hike, the British central bank said it now expects U.K. inflation to rise to “about 5%” by the middle of next year.
Markets had priced in a 99% chance that interest rates would be raised. Traders now see a 25% chance that the Bank of England raises interest rates again at its December meeting.
The U.K.’s inflation rate currently stands at an annualized 3.5%, driven higher by surging costs for gasoline, home heating fuel, and natural gas.
The U.K. is a net energy importer and vulnerable to external energy shocks such as the one caused by the ongoing Iran war.
The Bank of England will next decide on interest rates Dec. 17. The central bank targets inflation at an annualized 2%.
