UK central bank hikes rates amid financial turmoil

LONDON: The Bank of England focused on fighting inflation, announcing an 11th consecutive interest rate increase Thursday despite concerns about the economic fallout from troubles in the global financial system.

Britain’s central bank boosted its key rate by a quarter-percentage point to 4.25 per cent, a day after the US Federal Reserve approved a similar move to tame inflation that is crimping household budgets and slowing economic growth.

The decision by the bank’s Monetary Policy Committee came after the UK statistics agency surprised policymakers Wednesday by reporting that inflation accelerated to 10.4 per cent in February, driven by the cost of food, clothing and dining out.

Before the figures were released, many analysts had expected the Bank of England to keep rates on hold following the collapse of two US banks and the ensuing troubles at Switzerland’s Credit Suisse, which forced a hastily arranged takeover by rival UBS.

The bank will “continue to monitor closely indications of persistent inflationary pressures,” it said in announcing its decision. “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”

Still, Thursday’s move was the smallest rate hike since May 2022 as the Bank of England forecasts a steep drop in inflation later this year. Inflation is expected to slow to 2.9 per cent by the end of the year as energy costs fall and big price increases recorded last year drop out of the calculation.

Raising interest rates increases the cost of borrowing, which reduces spending and relieves upward pressure on prices. But it also tends to slow economic growth.

Central bankers worldwide are struggling to balance competing economic demands as they try to rein in inflation, which erodes savings and increases costs for consumers and businesses.