Bank of England raises rates for first time in three years

London — The Bank of England raised interest rates for the first time in more than three years on Thursday and warned that at least one further increase was likely if the US-Iran conflict continues, The Japan Times reported. The move puts Britain on a tightening path already begun by its main peers.

The central bank said British inflation is likely to climb to around 5% in the middle of next year — more than double its target. That is a blow to Prime Minister Andy Burnham, who has sought to ease cost of living pressures.

Policymakers found little evidence so far of faster inflation outside the sectors directly hit by higher energy costs. But they judged that the inflation pressure building after months of high energy prices required action now — even though tighter policy raises borrowing costs for businesses and many homeowners. That is the trade-off: dearer credit now, in the hope that pricier energy does not feed permanently into wages and prices.

The warning tied the decision squarely to the Gulf. With the US-Iran conflict keeping energy markets on edge, the bank signalled its next moves depend on how the fighting develops, leaving borrowers facing the prospect of more expensive mortgages and loans into next year.

What comes next is a watching brief on two fronts: the conflict itself, and the inflation data that will show whether price pressure is spreading beyond energy. The bank's own forecast — inflation around 5% by mid-year — sets the bar against which the next rate decision will be judged.