Bank of England Raises Interest Rates to 4.5%, Highest Level in 15 Years

The Bank of England raised interest rates on Thursday, the 12th increase in a row, as Britain’s inflation rate remained stubbornly in double digits.

Policymakers lifted the central bank’s key interest rate by a quarter of a percentage point to 4.5 percent, the highest since 2008. The long and aggressive policy tightening continues as Britain experiences higher inflation than the United States and Western Europe. Consumer prices rose 10.1 percent in March from a year earlier, the latest data showed, as food prices rose faster than expected, along with prices of other goods.

The rate hike addresses “risks of further sustained strength in domestic prices and wage settings,” according to minutes of the bank’s meeting this week.

Britain’s inflation rate is expected to fall more slowly than the central bank expected three months ago, mainly because food price inflation is forecast to fall more slowly. In March, food prices were nearly 20 percent higher than a year earlier, the fastest inflation in more than 45 years.

By the end of the year, the inflation rate, which includes food and energy prices, is expected to drop to 5.1 percent, the central bank forecast. Data published this month for April is expected to show inflation starting to slow further as rising household energy bills offset annual inflation estimates. A year earlier, household energy bills rose by more than 50 percent after the war in Ukraine drove up wholesale prices.

As the Bank of England tries to force inflation down to the target of 2 percent, good economic news can complicate the mission. Three months ago when the central bank last published its forecast, it had a pessimistic view of the UK economy, predicting a five-quarter contraction of the economy and a mild recession. On Thursday, he announced the biggest upgrade to his economic forecast in the bank’s history, thanks to lower wholesale energy prices and extra fiscal stimulus from the government. No more predictions of economic contraction.

Rather than a recession, better-than-expected growth, with lower unemployment and rising consumer confidence, could allow some inflationary pressures to remain in the economy for longer than previously thought.

However, the improved economic outlook can only bring comfort to households and businesses. The forecast is dire: The economy will grow by about a quarter of a percent this year, according to bank projections.