LONDON, July 5, 2007 (AFP) – The Bank of England raised its key interest rate by a quarter-point to 5.75 percent on Thursday, the highest level for more than six years, in a bid to dampen British inflation.
The BoE’s move to hike the cost of borrowing for the fifth time since August 2006 had been widely anticipated by economists, after recent data revealed that Britain’s economy had grown faster than expected early this year.
In Frankfurt on Thursday, the European Central Bank kept the eurozone’s key borrowing cost at 4.00 percent, but was expected to carry out a quarter-point rise in September.
The market has focused on widening interest-rate differentials that prompt investors to sell low-yielding currencies such as the yen to invest in higher-yielding assets denominated in currencies such as the euro, pound, and New Zealand dollar.
Sterling rallied against the dollar following the BoE’s latest hike, trading above 2.0 dollars and close to a fresh 26-year high. The key US interest rate has stood at 5.25 percent for a year.
“The Bank of England’s Monetary Policy Committee today voted to raise the official Bank Rate paid on commercial bank reserves by 0.25 percentage points to 5.75 pe