Bank of England raises interest rates

Thursday, January 11, 2007

The Bank of England in Threadneedle Street, London.

In a move widely viewed as surprising, the Bank of England raised UK interest rates from 5% to 5.25%, the highest in five years. In a press release the Bank stated that "an increase in Bank Rate of 0.25 percentage points to 5.25% was necessary to bring CPI inflation back to the target in the medium term".

The last publicly released value for inflation (measured according to the consumer price index) stood at 2.7%, above the Government target of 2%. However the Bank and Government receive advance figures, not due to be publicly released until next week. Analysts have speculated that these figures may explain the rise.

Following the announcement the FTSE 100 fell.

The Bank of England's Monetary Policy Committee has been responsible for setting the UK's official interest rate each month since 1997. Prior to this the base rates were controlled by the Treasury and the Chancellor of the Exchequer.

In a separate decision the European Central Bank maintained the interest rate within the Eurozone at its previous value of 3.5%.