Interest rates rise after UK inflation shock

British households to feel more pain but long-term outlook 'is improving'

The Bank of England's Monetary Policy Committee lifted interest rates for the 11th time in a row on Thursday, to 4.25 percent, partly in response to a surprise jump in inflation figures revealed earlier this week.

The United Kingdom's official inflation figure had unexpectedly climbed from 10.1 percent to 10.4 percent, data released on Wednesday showed, heaping pressure on the central bank to increase the base interest rate.

The rate rise is consistent with the bank's plan to tackle inflation, but will have a negative impact on borrowers and those on tracker mortgage deals.

Despite the inflation increase, the Bank of England said it no longer predicts the UK to be heading into an immediate recession, and expects the economy to grow "slightly" in the coming months, rather than shrinking as previously forecast.

It also noted that any further interest rate rises would only come if there was "evidence of further inflationary pressure", and said it will update its economic forecasts in May.

Minutes from the committee's meeting said inflation "increased unexpectedly in the latest release, but it remains likely to fall sharply over the rest of the year".

Analysts had previously expected the UK's latest inflation figure to drop into single digits for the first time in seven months, but a shortage of vegetables and a spike in costs at restaurants and bars pushed it up.

The BBC reported that policymakers had been wary of pushing the interest rate higher, as problems in the banking sector this month demonstrated the impact of the consecutive rate increases. There has been market anxiety in the wake of the collapse of Silicon Valley Bank and Credit Suisse.

The Federal Reserve, which is the United States' central bank, raised its interest rates on Wednesday by 0.25 percent despite fears about financial turmoil following the bank failures. The European Central Bank last week stuck to its plans and raised rates by 50 basis points.

Prior to the Bank of England's rate rise announcement, Craig Erlam, a senior market analyst for Oanda, was quoted in media outlets as saying inflation figures had been a "crushing blow".

He said: "Whatever flexibility the Bank of England may have thought it would have on Thursday was wiped out by Wednesday morning's inflation data."

ING economist James Smith was quoted by Reuters as saying any rate increase would prove to be the last from the bank for some time.

"Assuming the broader inflation data continues to point to an easing in pipeline pressures, then we suspect the committee will be comfortable with pausing by the time of the next meeting in May," Smith said.

Britain's finance minister, Chancellor of the Exchequer Jeremy Hunt, welcomed the Bank of England's decision, saying it will help get a "grip" on rising prices.

The UK's Office for Budget Responsibility has forecast that inflation will fall to 2.9 percent by the end of this year.