LONDON: The Bank of England raised its benchmark interest rate to four per cent on Thursday, the first increase in more than three years, as soaring energy costs push up global inflation.
The BoE warned UK inflation risked hitting 6.2pc in the third quarter of next year from 3.5pc currently, in a worst-case scenario of oil prices soaringfarbeyond $100 abarrel because of the Middle East conflict.
At the same time, the central bank upgraded its economic growth forecasts for this year and next, driven by ‘strength in business investment’, which ‘partly reflects strength in AI-related demand,’ it said in a statement.
The central bank tightened borrowing costs by a quarter point, catching up with the US Federal Reserve and the European Central Bank in lifting rates since the start of the Middle East conflict.
Along with Ukraine’s strikes on Russian refineries, disruptions to Gulf energy supplies due to the US-Iran war have caused record-high diesel prices worldwide.
‘There is now enough inflationary pressure in the pipeline caused by the rise in energy prices that an increase in bank rate is warranted,’ BoE governor Andrew Bailey said on Thursday.
The BoE estimated UK gross domestic product to hit 1.6pc this year and 1.3pc next year.
In July, it forecast GDP growth of 1.1pc in both years, while its expectation that UK growth will slow next year mirrored recent forecasts from the country’s government and the International Monetary Fund.-AFP