Bank of England raises interest rates to highest level in 14 years

The Bank of England has raised interest rates to 3.5% from 3%, the highest for more than 14 years.

A 0.5% hike was announced on Thursday afternoon, and is expected to represent a slight cooling in rate increases.

It marks the ninth time in a row that officials have increased rates, as they try to tackle inflation.

It comes after the Bank’s Monetary Policy Committee (MPC) opted for a 0.75-point rise last month – the highest single increase since 1989.

Financial chiefs said at the time that the UK could be in line to experience the longest recession since records began after announcing the decision to raise the base rate from 2.25% to 3% – the highest level since 2008.

The MPC said a “forceful” policy response was justified as the labour market remained tight across the month.

There are also signs that inflationary pressures could stick around for longer than thought, it said.

Most of the committee’s nine members agreed that they would continue to vote for rate rises if the economy broadly continues to develop as the committee expected when it last met a month ago.

“The majority of the committee judged that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank rate might be required for a sustainable return of inflation to target,” the Bank said.

On Wednesday, the Office for National Statistics (ONS) revealed that inflation had reached 10.7% – slightly lower than expectations and a reduction from the 41-year high seen in October.

The MPC is tasked with trying to get inflation under control, to 2% if possible.

The Bank also said that the economy is now expected to do better in the final three months of 2022 than it had previously thought. Gross domestic product (GDP) is forecast to fall by 0.1% in the fourth quarter, compared with the previous forecast of a 0.3% drop.

But two members of MPC voted for interest rates to remain unchanged at 3% – going against the majority.

The pair – Swati Dhingra and Silvana Tenreyro – said rates as they stand now should be “more than sufficient to bring inflation back to target”.

Another member – Catherine Mann – argued at the meeting for a 0.75 percentage point rise, to 3.75%.

She said that, while inflation is easing, she saw evidence that rising prices and wages will keep putting pressure on inflation.