By Andy Bruce and David Milliken
LONDON, Feb 3 - The Bank of England raised interest rates to 0.5% on Thursday and nearly half of its policymakers wanted a bigger increase to contain rampant price pressures, as the central bank warned inflation will soon top 7%.
The BoE said consumer price inflation - which stood at 5.4% in December - now looks set to peak at around 7.25% in April, which would be the highest rate since the recession-ravaged early 1990s and miles off its 2% target. "Given the current tightness of the labour market and continuing signs of greater persistence in domestic cost and price pressures, all members of the Committee judged that an increase in Bank Rate was warranted at this meeting," the minutes from the BoE's Feb. 2 meeting said.
Price pressures looks set to persist for much longer than forecast in November by the BoE, which trebled its forecast for wage growth this year to 3.75%. They also warned a larger rate hike could have an "outsized impact" on expectations for borrowing costs, which were already strong enough, if implemented, to push inflation below target in three years' time.
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