The Bank of England raised Thursday UK interest rates to 5.25% from 5% in an effort to curb inflation and surprising analysts who were expecting the decision for next month.
Consumer price inflation in the UK has recently risen to 2.7%, the highest level in more than a decade. The rise is the third in five months, as part of an effort by policymakers to stem inflationary pressures. In a statement announcing its decision, the Bank of England's Monetary Policy Committee said it expected consumer inflation to rise further in the near future. Inflation is already well above the government's 2% target and some analysts believe it will exceed 3% when the latest figures are published this month. Employer groups expressed disappointment at the move, saying it could harm already struggling businesses. "If part of the intention was to dampen wage increases, it is doubtful a rate rise will have the desired effect," said Ian McCafferty, the CBI's chief economic adviser. The FTSE 100 fell on the news amid concerns that the rate rise could constrain companies' growth and slow the housing market. The Bank of England has, in the past, announced rate rises in the same month as it published quarterly inflation figures but this time decided to make its move a month earlier. Experts thought it would wait for further evidence of how recent rate rises had affected this year's public sector pay agreements, and consumer spending over the festive period. In other reaction, the Trade Unions Congress said the move "smacked of panic" but the Institute of Directors described it as "tough but wise". "Inflation is well above target," said Graeme Leach, its chief economist. "The Bank of England's pre-emptive strike looks sensible."