Bank of England hikes interest rates for 11th time running after leap in inflation

The Bank of England increased interest rates for the 11th time in a row after an unexpected resurgence in UK inflation.

The Bank’s Monetary Policy Committee (MPC) decided to increase interest rates to 4.25% from 4%, just a day after the US Federal Reserve raised its key overnight interest rate by a quarter of a percentage point.

The Bank of England has faced a difficult balancing act, weighing up the need to rein in inflation with the worries over banking woes and the possibility they may start to clamp down on lending.

Shares on Wall Street tumbled sharply overnight on the Fed’s decision and its comments suggesting it does not expect to cut rates anytime soon, highlighting the fragility of stock market confidence.

It follows an unexpected jump in Consumer Prices Index inflation, from 10.1% in January to 10.4% in February, which economists predicted would make it harder for the Bank to justify pausing its prolonged cycle of rate increases.

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

Craig Erlam, a senior market analyst for Oanda, said: “Whatever flexibility the Bank of England may have thought it would have on Thursday was wiped out by Wednesday morning’s inflation data.”

He added there is “nothing that would justify a pause” in raising interest rates, “even against the backdrop of financial stability concerns and the knock-on effects of aggressive rate hikes”.

It follows the collapse of the US’s Silicon Valley Bank and the historic rescue takeover of Credit Suisse, with both events sending shockwaves through the financial markets and sparking fears of a global banking crisis.

It also threw into question whether higher interest rates are putting too much pressure on smaller lenders, which could be buckling under the weight of losses on their investments.