Interest rates rise to 4.25% after shock increase in inflation

Economists predicted the rise after an unexpected resurgence in inflation was revealed earlier this week.

Bank of England raise interest rates to 4.25% after shock increase in inflation iStock

The Bank of England has raised interest rates to 4.25% from 4%.

The increase will be the 11th in a row and follows an unexpected resurgence in UK inflation.

The Bank of England expects the UK economy to grow slightly between April and June, revising a previous forecast that gross domestic product (GDP) would drop by 0.4%.

It also comes after the US Federal Reserve raised its key overnight interest rate by a quarter of a percentage point, despite recent turbulence in financial markets amid fears of a banking crisis.

UK economists had been on the fence about whether Britain’s central bank will opt for another rate rise at Thursday’s Monetary Policy Committee (MPC) meeting, following a period of instability in the global banking sector.

Some of the sharpest drops again came from the banking industry, where investors are worried about the possibility of more banks failing if customers pull out their money all at once.

But the unexpected jump in Consumer Prices Index inflation, from 10.1% in January to 10.4% in February, is seen as making it harder for the Bank to justify pausing its prolonged cycle of rate increases.

Another rate rise will pile yet more pressure on borrowers, already under strain from the cost of living crisis.

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