Bank of England hikes rates for fifth time to battle soaring inflation

The Bank of England today hiked its benchmark interest rate for the fifth time in a row as it tries to rein in rampant inflation, raising it by 0.25 basis points to 1.25 percent.

“In view of continuing signs of robust cost and price pressures, including the current tightness of the labour market, and the risk that those pressures become more persistent, the Committee voted to increase Bank Rate by 0.25 percentage points, to 1.25 [percent], at this meeting,” the Bank said.

The move comes as central banks worldwide step up their efforts to tame inflation. U.K. inflation hit 9 percent in April.

But the BoE’s move is much less drastic than the U.S. Federal Reserve, which on Wednesday announced the largest rate increase since 1994 — by three-quarters of a percentage point.

The more modest U.K. approach comes as the central bank balances the fear of “stagflation,” where low growth combines with high price rises like in the 1970s. The U.K. economy contracted by 0.3 percent in April and the BoE said this was weaker than expected.

Consumer confidence has also fallen, but other household spending indicators are up, the central bank said.

The Bank’s Monetary Policy Committee voted by 6-to-3 in favor of the 0.25 basis point increase, with the minority favoring a larger increase to 1.5 percent.

The BoE said the scale of future increases would depend on the economic outlook and inflationary pressures.

“The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response,” it said.