UK Interest Rates Go Up, Inflation Tipped To Rise Too

The Bank of England on Thursday raised its main interest rate by a quarter point to one percent to tackle runaway UK inflation that is causing a cost-of-living crisis.

It was the fourth straight rate rise by the BoE, which added that British annual inflation would top 10 percent this year, fuelled by energy prices.

BoE policymakers voted 6-3 at a regular meeting for a hike to one percent, the highest level since the global financial crisis in 2009.

A minority called for a bigger increase to 1.25 percent, while the BoE said in a statement that it "may need to increase interest rates further in the coming months".

BoE governor Andrew Bailey voted for a rise of 0.25 percent.

The pound tumbled against the US dollar as the BoE highlighted recession risks to the UK economy.

The latest rate tightening came as Britons on Thursday headed to the polls in local elections, seen as a mid-term test for embattled Prime Minister Boris Johnson.

It also follows the US Federal Reserve's decision on Wednesday to raise American interest rates by half a percentage point as inflation soars also in the world's biggest economy.

Central banks worldwide are raising interest rates with inflation sitting at the highest levels in decades.

Speaking at a press conference, Bailey highlighted the impact of the inflationary shock.

"I recognise the hardship this will cause for many people in the UK, particularly for those on the lowest incomes, often with little or no savings, who are hit hardest by the increases in basic necessities like food and energy," he said.

The British pound plunged more than two percent to US$1.2362 after the BoE decision.

"The pound is under pressure as a result of the vote split... suggesting that there is increasing nervousness about the UK economic outlook and the risk of recession," Interactive Investor analyst Victoria Scholar told AFP.

The BoE said UK output was expected to contract in the final quarter of the year when inflation is set to top double figures as household energy prices rise sharply.

Consumer prices are surging as economies reopen from pandemic lockdowns, and in the wake of the Ukraine war that is aggravating already high energy costs.

Britain's annual inflation stands at 7 percent, the highest level in three decades, while a rate of 10 percent would be a four-decade peak.

Bailey insists that the central bank is seeking to tackle high inflation while avoiding Britain falling into recession. (AFP)