Bank of England raises interest rates to 5.25%

The Bank of England has today implemented a quarter-point increase in its key interest rate, bringing it to the highest level since 2008. This move comes as the Bank aims to address persistently high inflation, despite some signs of improvement in the economy with low unemployment rates.

This latest hike marks the 14th consecutive increase in the Bank Rate, part of a series of monetary policy tightening measures to combat the most severe inflation surge in 40 years. Although inflation has decreased from its peak, it remained at nearly 8 percent in July, almost four times the level considered as price stability by the Bank.

The Bank emphasized its readiness to raise rates further if inflationary pressures prove to be more enduring than currently anticipated. However, the outlook is balanced delicately, as UK wages continue to grow at an "unsustainable" pace, while the effects of last year's energy and commodity market spikes seem to be reversing. Particularly, factory gate prices have declined in five of the last seven months and are now relatively stable compared to a year earlier.

Before the meeting, analysts were divided on the extent of the rate increase, with a slight majority expecting a quarter-point hike and a significant minority anticipating a half-point increase.

Ahead of the announcement, the pound had weakened to its lowest level in over a month due to risk aversion in financial markets following the U.S. credit rating downgrade by Fitch on Tuesday. This development pushed up U.S. and global bond yields, making the dollar relatively more attractive in the short term. As a result, the pound was at $1.2637 by 1305 CET, down 0.65 percent on the day, and traders adjusted their peak rate expectations to 5.75 percent.

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