UK central bank raises interest rate to 3.5%

LONDON - Britain's central bank, the Bank of England (BoE) on Thursday raised its benchmark interest rate, Bank Rate, by 0.5 percentage points, to 3.5 percent, the highest since October 2008, to tackle high inflation.

At its meeting ending on Wednesday, the central bank's Monetary Policy Committee (MPC) voted 6-3 in favor of the hike. Two members preferred to maintain the rate at 3 percent, and one preferred a 0.75 percentage point rise, to 3.75 percent.

The labor market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response, the BoE noted in a statement.

The majority of the MPC members believe that, should the economy evolve broadly in line with the committee's November projections, further rate increases may be required for a sustainable return of inflation to target.

"There are considerable uncertainties around the outlook," the BoE said. If the outlook suggests more persistent inflationary pressures, the MPC "will respond forcefully, as necessary."

Britain's twelve-month Consumer Price Index (CPI) was 10.7 percent in November, down from the 41-year high of 11.1 percent in October but still well above the BoE's 2 percent target.