The Bank of England has increased interest rates for the first time in more than three years and signalled that further rises are likely if the conflict involving Iran is not resolved.
At its latest meeting, the Monetary Policy Committee (MPC) voted to raise the Bank's base rate to 4% from 3.75%. It is the first time borrowing costs have increased since August 2023.
Committee votes unanimously for a hike
All nine members of the committee voted for an increase, although one member, Catherine Mann, preferred a larger rise of 0.5 percentage points.
The MPC said action was needed to control rising inflation in the UK economy, which was being driven higher by the impact of the US and Israel's ongoing conflict with Iran on global energy and fuel prices.
Governor warns of further increases
Governor Andrew Bailey said: "There is now enough inflationary pressure in the pipeline caused by the rise in energy prices, that an increase in Bank rate is warranted.
"Today's increase shouldn't be seen as the first in an inevitable long sequence of hikes.
"But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase."
Cost pressures could reach consumers
The MPC noted that many companies had so far absorbed higher energy costs into their profit margins or had hedged against large spikes since the war began around nine months ago.
However, it warned that such "buffers would only prove temporary and these cost pressures would eventually pass through into higher consumer prices if the energy shock persisted".
Households could therefore face price rises in shops for goods such as food, drink and other items and services.
