Bank of England Raises Interest Rates to Combat Inflation

The Bank of England raised interest rates in the United Kingdom on Thursday to combat surging consumer prices, becoming the first central bank among the world's leading economies to do so since the coronavirus pandemic began.

The increase in the bank's main rate to 0.25% from the record low of 0.1% was a surprise given the rapid spread of the omicron variant of the coronavirus across the country, which is already hurting many businesses, particularly those in the hospitality sector.

But with consumer price inflation running at 5.1%, more than double the bank's target of 2%, the vast majority on the bank's rate-setting Monetary Policy Committee decided action was needed now. For many households struggling with rising prices, it's likely to be another hit to their incomes, at least in the short-term, with mortgages and loans set to increase, too.

The Bank of England's decision comes a day after the U.S. Federal Reserve announced it would speed up its tightening of credit as inflation reached a 40-year high in November. In contrast, the European Central Bank is expected to sound a note of caution as it also meets Thursday.

Minutes of the Bank of England's decision showed that eight of the nine members of the rate-setting panel backed the increase.

It sent the pound soaring in currency markets. Soon after the decision, it was trading 0.7% higher at $1.3355.