London: The Bank of England has raised interest rates to the highest level in 14 years, taking the cost of borrowing to 3.5 per cent while warning that further rises were likely despite the economy slightly improving.
Officials at the central bank voted to increase interest rates by half a percentage point – a ninth successive increase – in a bid to control spiralling inflation, which has plunged British households and businesses into a cost of living crisis.
Rates have now risen by 3.4 points since their low of 0.1 per cent last December in the most aggressive set of hikes since 1989.
In a sign that the Bank was slowing the pace of increases as economic activity lags, the latest rate rise, which is in line with investors’ expectations, is smaller than the 0.75-point increase implemented in November.
The European Central Bank also announced an increase in its deposit rate from 1.5 per cent to 2 per cent, its highest level since the global financial crisis in 2008, and signalled that it would increase borrowing costs repeatedly by half a point in the coming months.
The US Federal Reserve and the Swiss National Bank both raised its benchmark rate by 0.5 percentage points on Wednesday as Western central banks grapple with post-COVID labour shortages and the impact of Russia’s invasion of Ukraine on energy prices.
Bank of England Governor Andrew Bailey said on Thursday that there were signs inflation was now beginning to come down from its 41-year-high, but that the bank had still needed to raise rates to offset pressures from a tight labour market.
“We think we’ve seen possibly this week the first glimmer, with the figures released this week, that it’s not only beginning to come down but it is a little bit below where we thought it would be and that is obviously very good news but there is a long way to go,” he said.