The Bank of England has raised interest rates for the 11th time in 18 months, as it signalled that more rises may be needed to curb inflation.
The Bank’s Monetary Policy Committee (MPC) increased rates to 4.25pc on Thursday, a rise of 0.25 percentage points, after data showed that inflation grew unexpectedly last month. The Consumer Prices Index came in at 10.4pc, compared with predictions of 9.9pc.
The Retail Prices Index, of which a quarter of the Government's debt is linked to, rose by 13.8pc, an increase from 13.4pc in January.
Policymakers said the Bank was ready to act in the event inflation continues to climb.
“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required,” the Bank said in a statement.
Policymakers said they were still expecting the pace of price rises to slow “significantly” in the coming three months despite February's surprise increase in inflation.
The extension of the Government’s energy price guarantee and falling gas prices would help to bring inflation down, they said.
Threadneedle Street also acknowledged there had been “large and volatile moves in the global financial markets” after the collapse of Silicon Valley Bank in the US and the rescue of Credit Suisse in Europe.
While many commentators had questioned whether the turmoil would prompt rate-setters to hold back on further increases, the Bank said it was confident banks lenders could handle rising borrowing costs.
“The UK banking system maintains robust capital and strong liquidity positions, and is well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates,” the Bank said.
It comes after the Federal Reserve in the US yesterday lifted its target range by 0.25 points to 4.75 to 5pc.
The European Central Bank opted for another outsized hike of 0.5 basis points last week and vowed to keep up its fight against inflation despite the recent turmoil.
The Bank said it was monitoring signs of lenders tightening the purse strings in response to fears over the global banking system.
Among the nine members of the MPC, two strayed from the consensus. Doves Swati Dhingra and Silvana Tenreyro voted for rates to remain at 4pc.
They argued that the full impact of previous rate rises was still filtering through and warned that over-tightening would speed up the point when recent increases would need to be reversed.
The Bank of England has raised rates by 4.15 percentage points since starting what has become its fastest rate-hiking cycle in more than three decades.
It has upped rates eleven times since it started increasing borrowing costs in December 2021.
The decision also follows Chancellor Jeremy Hunt’s maiden Budget. The Bank judged that measures announced by the Treasury would add 0.3pc to GDP in the coming years.
It expects economic growth to stagnate around the turn of the year but believes it will increase slightly in the coming three months.
The latest prediction marks a more upbeat outlook than in February, when the Bank predicted the economy would shrink by 0.4pc in the second quarter.
Central bankers also reported that demand had held up better than expected among households, even though supermarkets and retailers said shoppers were trading down to manage inflation.
The rate increase means more than 1.4 million homeowners face yet another increase in their mortgage bills as a result.
The Bank said it would continue to watch out for signs of “persistent inflationary pressures, including the tightness of the labour market conditions and the behaviour of wage growth and services inflation”.