The Bank of England in London, UK

The Bank of England (BoE) today raised its Bank rate of interest from 0.75% to 1%, in a bid to counter the UK’s soaring inflation rate.

UK inflation stands at 7%, and the 25-basis point hike was widely predicted by City forecasters. UK interest rates last stood at 1% in the early part of 2009.

The move, the BoE’s fourth rate rise since December last year, followed yesterday’s decision by the US Federal Reserve to raise its interest rates ceiling by 50 basis points to 1%.

Today’s announcement by the BoE is the latest in a series of attempts by central banks around the world to tackle the inflationary headwinds being felt in many countries. US inflation stands at 8.5%. Both the BoE and the Fed have inflation targets of 2%.

Earlier this week, the Reserve Bank of India and Reserve Bank of Australia both announced interest rate hikes. The first rise in a decade in the case of the latter.

A rise in the UK bank rate can prove costly to households with either variable rate or tracker mortgages. This is because lenders tend to increase the repayments required on home loans to reflect higher borrowing costs.