The Bank of England hikes interest rates to 1%, the highest level since 2009

• The Bank of England on Thursday hiked interest rates by 25 basis points to 1%, the highest level since 2009.
• The BoE is grappling with the strongest inflation in 30 years, but also with a slowing economy.

The Bank of England raised interest rates by 25 basis points for the fourth consecutive meeting on Thursday, even as it predicted a rapid slowdown in economic growth.

The BoE hiked rates to 1%, the highest level since 2009. Six BoE officials voted for a 25 basis-point increase, while three thought a 50-basis point hike was needed to tackle the strongest inflation in 30 years.

It comes after the US Federal Reserve on Wednesday hiked interest rates by 50 basis points for the first time since 2000. The move took the target range for the federal funds rate to between 0.75% and 1%.

The BoE is in a tricky position, balancing the need to control inflation against a desire to protect an increasingly fragile economy.

Britain's central bank predicted inflation will surge above 10% in October as a result of a rise in the UK's energy price cap.

Inflation in the UK hit 7% year-on-year in March, the hottest reading since 1992 and well above the BoE's target of 2%.

The BoE also painted a gloomy picture of the economy. It now expects UK gross domestic product to contract 0.25% in 2023, having previously expected growth of 1.25%.

"The stage is set for a pretty bleak winter of discontent with the economy heading into reverse and little end in sight to rising prices given the ongoing toll the war in Ukraine is having on commodity markets," said Susannah Streeter, market analyst at Hargreaves Lansdown.

Analysts are divided about the likely future path of interest rates, given the uncertain economic situation.

Paul Dales, economist at Capital Economics, said he thought the BoE would have to keep hiking rates to 3% next year to get a grip on inflation.

"We think that a tight labour market and sticky price/wage expectations will mean that domestic price pressures remain stronger for longer than the Bank expects," he said.

However, Samuel Tombs of Pantheon Macroeconomics said the weak economy would limit the scope for rate rises.

"We continue to expect the Committee to keep bank rate at 1% at next month's meeting, before raising it to 1.25% in August and then keeping it at that level well into 2023," he said.

The pound tumbled after the BoE's announcement, down 1.85% to $1.24 as of 7.55 a.m. ET. London's FTSE 100 stock index was up 1.51%.