Bank of England raises interest rates to 0.25%

The Bank of England has raised interest rates for the first time in more than three years, in response to calls to tackle surging inflation.

The Monetary Policy Committee voted 8-1 in favour of the increase to 0.25%.

Rates were cut to a record low of 0.1% in March last year in response to the effects of the coronavirus pandemic.

The increase came despite fears that the Omicron variant of Covid could slow the UK economy by causing people to spend less.

The Bank said global asset prices had initially fallen in response to news of the new variant, but had since largely recovered.

The decision by the Bank of England to increase the base rate to 0.25% will add just over £15 to the typical monthly repayment for a tracker mortgage customer.

A standard variable rate mortgage-holder is likely to pay nearly £10 extra a month.

Nearly two million people in the UK have one of these two types of mortgage.

While savings rates may increase slightly, returns are still well below the rate of inflation.

"Consumer price inflation in advanced economies has risen by more than expected," the Bank said.

"The Omicron variant poses downside risks to activity in early 2022, although the balance of its effects on demand and supply, and hence on medium-term global inflationary pressures, is unclear. Global cost pressures have remained strong."

Successive waves of Covid appeared to have had less impact on economic growth, the Bank added, although there was uncertainty around the extent to which that would prove to be the case this time.

The committee also voted unanimously to maintain the Bank's asset purchase scheme at £875bn.

The last time the Bank raised interest rates was in August 2018, when they reached 0.75%.

They were then cut twice in March 2020 at the start of the pandemic.

Figures issued on Thursday showed the cost of living surged by 5.1% in the 12 months to November, up from 4.2% the month before, and its highest level since September 2011.