The Bank of England raised its benchmark interest rate to 4 percent on Thursday, the first increase in more than three years, as soaring energy costs push up global inflation.

The central bank tightened borrowing costs by a quarter point, catching up with the US Federal Reserve and the European Central Bank in lifting rates since the start of the Middle East conflict.

Along with Ukraine's strikes on Russian refineries, disruptions to Gulf energy supplies owing to the US-Iran war have caused record-high diesel prices around the world.

"There is now enough inflationary pressure in the pipeline caused by the rise in energy prices, that an increase in Bank Rate is warranted," BoE governor Andrew Bailey said in a statement.

"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."

Despite surging inflation, the bank upgraded its forecasts for UK economic growth in 2026 and 2027.

The central bank now estimates gross domestic product to hit 1.6 percent this year and 1.3 percent next year.

In July, it had forecast GDP output of 1.1 percent in both years.

The BoE last raised its key interest rate in August 2023, and has kept the cost of borrowing at 3.75 percent since December.

Britain's annual inflation rate accelerated by more than expected in September, rising to 3.5 percent – well above the bank's target of 2 percent.

The BoE on Thursday said its central forecast saw UK inflation peaking at 4.9 percent in the second quarter of next year.

Millions of Britons face a jump in energy bills from the start of next year, even after the government offered some assistance in its annual budget announcement last week. (AFP)



Edited by Edmond Fong