The Bank of England raised the base interest rate to 1.25%, the highest rate in 13 years.
The Bank’s monetary policy committee announced the move on Thursday in a bid to temper rising inflation and tackle weak economic growth.
This is the fifth consecutive increase and raises the base interest rate from 1% to 1.25%.
Inflation jumped to 9% in the 12 months to April, up 2% from March.
Rising fuel and food prices, driven by the war in Ukraine, have also pushed up the cost of living.
“The magnitude, pace and timing of any further Bank Rate increases will reflect the Committee’s assessment of economic prospects and inflationary pressures,” the Bank of England said in a statement.
“The Committee will be particularly attentive to indications of more persistent inflationary pressures and will act forcefully in response if necessary.”
The Bank of England’s decision to raise the key rate to 1.25% lagged action by the US Federal Reserve on Wednesday.
The Fed raised its key rate from 1.5% to 1.75% this week.
“It is quickly becoming clear that more drastic action is needed for the Bank of England to establish some sense of stability, because tinkering around the edges is simply not enough,” said Michael Hewson, chief market analyst at CMC Markets UK, in a note to clients.
Three of the nine members of the monetary policy committee voted for an even bigger hike on Thursday, arguing that rates should rise to as much as 1.5%.
“Given continuing signs of strong cost and price pressures, including the current tightness of the labor market, and the risk that these pressures will become more persistent, the committee voted to increase the discount rate by 0 .25 percentage points,” he said.
Commenting on the rate hike, head of research at the UK Chambers of Commerce, David Bharier, said: “While expected, the decision to raise the interest rate will add to business concern amid the outlook. weakened economies, growing cost pressures and labor shortages.
“The increase signals the Bank’s intention to fight inflation, but businesses have been sounding the alarm about soaring prices since the start of 2021 and a higher interest rate is unlikely to resolve many of the global causes of this situation.”