- The Bank of England raised interest rates by 50 basis points Thursday.
- It's battling to reign in soaring prices, with inflation sticking at 8.7% last month.
The Bank of England shocked markets with a jumbo-sized interest-rate hike Thursday, pressing ahead with its war on inflation by lifting borrowing costs to 5%.
Seven members of the UK central bank's nine-person Monetary Policy Committee voted to lift rates 50 basis points, defying most economists' forecasts of a 25-basis-point move.
Policymakers said that "significant upside news in recent data" had signaled that inflation would prove stickier than it had previously forecast.
The rate hike comes after Thursday's Consumer Price Index showed inflation remaining at 8.7% in May, way clear of the BoE's 2% target.
UK interest rates are now at their highest level since 2008 after the bank brought in its largest rate hike since February.
The UK central bank went ahead with the bigger-than-expected rate increase even after its US counterpart, the Federal Reserve, chose to leave interest rates unchanged this month following a steady decline in American inflation since mid-2022.
The British pound traded level at around $1.28 after the bank announced its latest decision, while 10-year government bond yields fell by around 13 basis points.
"Inflation is not playing ball, therefore, the Bank of England felt it had little option but to crank up interest rates even more this time around despite the broader implications of the uptick in borrowing costs," Interactive Investor analyst Myron Jobson said.
"Interest rate rises have been called a blunt instrument, but with very few tools in the box, it seems a sledgehammer is required to fight inflation," he added.