Interest rates raised to 4.25% by Bank of England

Interest rates have been hiked to their highest for 14 years in an attempt to slow the soaring cost of living.

The Bank of England's decision to lift rates to 4.25% from 4% comes after figures showed the cost of living rising by more than expected.

Prices rose at a faster rate than expected last month driven by a sharp increase in the cost of food.

The rate rise comes despite lingering worries over the global financial system after two US banks failed.

The Bank has been steadily putting up interest rates in an attempt to tackle the soaring cost of living.

Inflation, which is the rate at which prices rise, remains close to its highest level for 40 years - more than five times what it should be.

The Bank voted to increase its benchmark rate to a fresh 14-year high following inflation increasing "unexpectedly", but it said price rises remained "likely to fall sharply over the rest of the year".

Its rate-setting Monetary Policy Committee voted in favour the latest rise, with a majority of seven to two, with the Bank saying "cost and price pressures have remained elevated".

It means that mortgage costs for some homeowners will rise and some savers will be able to access better returns.

The Bank warned the extent to which inflation eases in the coming months would depend on the "evolution of the economy", including the impact of its interest rate hikes so far.

But in line with the government's official independent forecaster, the Bank said the UK was no longer heading into an immediate recession and added the UK economy was expected to grow "slightly" in the coming months, rather than shrinking as previously forecast.

The Bank noted in its report that there had been "large and volatile moves in global financial markets" since the failure of Silicon Valley Bank in the US and in the run-up to UBS's state-backed acquisition of troubled Swiss bank Credit Suisse.

"The economy has been subject to a sequence of very large and overlapping disturbance," the Bank said.

But it said it believed the UK banking system remained "resilient" following the recent turmoil.

The Bank indicated that if inflation persisted, further interest rate rises may follow, but said the rate of price increases was "still expected" to slow significantly in 2023, largely due to the government extending energy bill support to households in the Budget to maintain typical household bills at £2,500 a year, as well as falls to wholesale gas prices.

Economists also believe that inflation will fall in the coming months due to energy prices dropping as temperatures get warmer.

The UK's inflation rate is currently higher than any other of the world's advanced economies, with prices rising by 10.4% in the year to February, in contrast to the US and the Eurozone where inflation has eased to 6% and 8.5% respectively.

The Bank went as far to say that the contribution of energy prices to overall inflation would "turn negative" by the end of this year. The high price of energy has been the main driver over the past year, with gas and oil prices surging in the aftermath of Russia's invasion of Ukraine.

But other factors such as worker shortages and food costs have also fuelled price rises.

On Wednesday, official figures revealed the latest rise in the UK's inflation rate was driven by salad and vegetable shortages pushing food prices up.

Food inflation hit 18.2% and is now running at the fastest rate in 45 years.