Bank of England hikes interest rate to 14-year high

The central bank’s interest rate hike to 3.5 percent, the ninth rise in a row, aims to cool sky-high inflation.

People pass the Bank of England in London
People pass the Bank of England in London, the United Kingdom [File: Frank Augstein/AP]

The Bank of England (BoE) has hiked its interest rate by half a point to 3.5 percent, the highest level in 14 years, in a bid to cool sky-high inflation.

Thursday’s increase was the BoE’s ninth in a row, while the amount matches a hike on Wednesday by the United States Federal Reserve.

The European Central Bank later on Thursday hiked its main interest rate by 0.50 percentage points to 2.5 percent as it battles to reduce inflation in the eurozone. 

“The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response,” the BoE said in a statement following its latest rate increase.

The hike was less than in November, when the BoE increased borrowing costs by 0.75 percentage points.

The US Fed also slowed the pace of its tightening on Wednesday, as inflation eases on both sides of the Atlantic.

The BoE on Thursday added that it expects the United Kingdom’s economy to contract 0.1 percent in the fourth quarter, better than its previous forecast for a contraction of 0.3 percent.

The BoE and UK government both believe the British economy has entered a recession that is expected to last all next year on fallout from rocketing energy and fuel bills.

UK inflation stands at 10.7 percent, the highest level for about 40 years.

Surging prices are eroding the value of wages, causing public and private sector workers to go on strike in an attempt to secure higher salaries.

Source: News Agencies