The Bank of England (BoE) raised its key interest rate by a quarter of a percentage point to a 15-year peak of 5.25% on Thursday, and issued fresh warnings that borrowing costs are likely to remain high for some time.
Unlike the US Federal Reserve or the European Central Bank, which also raised interest rates by a quarter of a percentage point last week, the BoE's Monetary Policy Committee gave little suggestion that rate hikes are coming to an end, as it struggles with high inflation.
"The Monetary Policy Committee will ensure that the Bank Rate is sufficient at least for a sufficient period to return inflation to the 2% target," the BoE said in new guidance on the outlook for borrowing costs.
"Some risks of more sustained inflationary pressures may have started," he added.
Governor Andrew Bailey emphasized that message to reporters after the announcement, even though the economy looks set to grow only minimally in the coming years.
"We have to continue based on evidence. We continue to use the same language that we have used before, which is that if we get more evidence of more sustained inflationary pressures, then we will have to respond to that.”
Bailey also said that it was too early to speculate on the timing of any rate cuts.
Sterling fell slightly after the data and financial markets moved to price in about two-thirds of the chance of a quarter-point interest rate hike to 5.5% in September.
Bailey said the rate of wage growth was "significantly above" the BoE's previous forecast which indicated that it would take longer for the effects of high inflation to fade than necessary.
Wages have been driving higher inflation than company profit margins, the BoE said.
Inflation in Britain hit a 41-year high of 11.1% last year and has fallen more slowly than elsewhere, standing at 7.9% in June, the highest of any major economy.
Economists interviewed by Reuters last week predicted BoE rates would peak at 5.75% by the end of the year. The BoE predicts inflation will fall to 4.9% by the end of the year, a faster decline than predicted in May.
