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Britain delivers second interest rate hike in over a decade

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Governor Mark Carney, addressing reporters after the announcement, cautioned that the bank is "well prepared for whatever path the economy takes, including a wide range of potential Brexit outcomes".

[LONDON] The Bank of England hiked interest rates Thursday by a quarter-point to 0.75 per cent to help tame high inflation, and upgraded its 2019 economic growth forecast despite investor fears of a chaotic Brexit.

The British central bank's nine-member monetary policy committee (MPC) voted unanimously to raise rates for only the second time since the global financial crisis, but left the quantitative easing stimulus unchanged.

The BoE also maintained its 2018 economic outlook, describing a Q1 slowdown as "temporary" with momentum set to recover in the second quarter - despite widespread trade-linked worries over the global economy.

Governor Mark Carney, addressing reporters after the announcement, cautioned that the bank is "well prepared for whatever path the economy takes, including a wide range of potential Brexit outcomes".

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The pound firmed on Thursday's news, which chimed with market expectations, while London's FTSE 100 shares index pared losses to stand 0.9-per cent lower.

"Although the global outlook was a little softer, recent data appeared to confirm that the dip in UK output in the first quarter had been temporary, with momentum recovering in the second quarter," the BoE said in minutes from the gathering.

"The labour market had continued to tighten and unit labour cost growth had firmed.

"Given these developments, a 0.25 percentage point increase in bank rate was warranted at this meeting to return inflation sustainably to the target."

Borrowing costs have now risen above 0.50 per cent for the first time since March 2009, having already been hiked from a record low last November to combat rising inflation.

The 12-month inflation rate has held stubbornly above the BoE's official 2.0-per cent for the last 17 months, as Brexit has weighed on the pound and pushed up the cost of imported goods.

High oil prices, which have leapt 50 per cent over the last year, have also fuelled inflationary pressures.

Inflation - currently sat at 2.4 percent - was set to rise slightly higher than the BoE had predicted in May.

There would need to be "an ongoing tightening of monetary policy over the forecast period ... to return inflation sustainably to the 2.0-percent target at a conventional horizon", the MPC added.

"All members agreed that any future increases in bank rate were likely to be at a gradual pace and to a limited extent."

Rising interest rates are a boon for savers but ramp up the cost of credit for consumers and companies.

The BoE meanwhile forecast that the UK economy would expand by 1.8 per cent next year, despite the nation's scheduled withdrawal from the European Union, up from its previous forecast of 1.7 per cent.

At the same time however, the bank left unchanged its 2018 forecast of 1.4 per cent growth.

Britain was the only G7 economy to experience a slowdown in 2017, the Office for National Statistics highlighted earlier this week.

The BoE had implemented an emergency quarter-point interest rate cut to a record low 0.25 percent in August 2016 on fears over the economic impact of the Brexit vote.

Kevin Doran, chief investment officer at AJ Bell, cautioned that the BoE could be readying itself in case another emergency rate cut was needed.

"It feels like there is an element of the Bank of England reloading the interest rate gun in case we need an emergency Brexit related cut next year," Mr Doran said.

"The UK economy is hardly charging ahead but ... Mark Carney and Co know that they have little room for manoeuvre should there be a stumble as we head towards the 29 March Brexit deadline next year."

The nation is due to leave the EU on March 30, 2019, but the process has been plagued by stalled trade talks with Brussels.

AFP