Bank of England raises key rate to 4.5%

LONDON - The Bank of England has raised its benchmark interest rate by 0.25 percentage points to 4.5 percent, the highest level since autumn 2008, it said in a statement on Thursday.

At its meeting ending on Wednesday, the bank's Monetary Policy Committee (MPC) voted in favor of the increase by a majority of 7-2, it said.

This is the 12th consecutive rate hike since December 2021 as the BoE continues its fight against high inflation, which remained at 10.1 percent in March, far above the bank's 2 percent target.

According to the bank, due to the recent drop in energy prices, inflation is expected to fall sharply from April to around 5 percent by the end of this year. However, food prices are projected to remain elevated.

The BoE also raised its forecasts for the British economy on Thursday, expecting the country's gross domestic product (GDP) to grow 0.25 percent in 2023, and 0.75 percent in 2024 and 2025. In February, the BoE forecast a 0.5 percent contraction in 2023.

"The improved outlook reflects stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labor market leads to lower precautionary saving by households," the bank said.

It added that "risks remain but, absent a further shock, there is likely to be only a small impact on GDP from the tightening of credit conditions related to recent global banking sector developments."

The bank reiterated that the MPC will continue to "monitor closely indications of persistent inflationary pressures" and consider further tightening in monetary policy if necessary.