The Bank of England (BoE) raised the key interest rate by 0.25% to 0.50% at its meeting today, which is in line with market forecasts.
Policymakers raised interest rates for the second time in three months to curb inflation. Inflation had risen to its highest level in 30 years, and for the first time since 2004, interest rates were raised at two consecutive meetings.
The UK Office for National Statistics (ONS) reported that the Consumer Prices Index (CPI), increased by 5.4% in December. This was the highest level in 30 years, following a 5.1% increase in November. This is more than double the target inflation of 2%.
The BoE also forecast today that inflation in the UK will reach a high of 7.25% in April.
Meanwhile, the BoE unanimously decided to reduce its total assets from 895 billion pounds and phase out quantitative easing (QE).
The UK service PMI also rose.
IHS Markit/CIPS reported that the U.K. Purchasing Managers’ Index (PMI) for the services sector rose to 54.1 in January from 53.6 in December.
The UK services sector recovered faster than expected in January after being hit hard by the spread of the COVID-19 virus.