Bank of England raises interest rates to tackle inflation and announces the economy is better than expected

The Bank of England has raised interest rates by a further quarter percentage following a surprise hike in inflation on Thursday.

This is now the eleventh successive rise for interest rates which now stands at 4.25% which comes after the US has seen financial turmoil after the Swiss investment bank Credit Suisse hit hard times.

Seven out of the nine monetary policy committee (MPC) members had voted for  the 25 basis point increase.

The minutes said that the Bank’s Financial Policy Committee had “judged that the UK banking system maintained robust capital and strong liquidity positions, and was well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The FPC’s assessment was that the UK banking system remained resilient.”

The committee explained why the seven members of the MPC voted for higher rates, saying, “headline CPI inflation had surprised significantly on the upside and the near-term path of GDP was likely to be somewhat stronger than expected previously.”

Swati Dhingra and Silvana Tenreyro who are two members said, “the current setting of Bank Rate would be likely to reduce inflation to well below target in the medium term.”

Inflation is set to come back down this year even though there has been an increase in Consumer Prices Index (CPI) inflation in February to 10.4% from 10.1% in January which driven by food and drink prices surging to an all-time high.

The Bank of England said, “CPI increased unexpectedly in the latest release, but it remains likely to fall sharply over the rest of the year.

The MPC said, “The economy has been subject to a sequence of very large and overlapping shocks.

“Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term.”