The Bank of England's Monetary Policy Committee has voted to raise the official Bank rate paid on commercial bank reserves by 0.25 percentage points to 4.75%.
The pace of economic activity has quickened in the past few months. Household spending seems to have recovered from its post-Christmas dip. Business investment growth and investment intentions have also picked up. In the UK's main export markets growth has remained robust. As a result, over the past few quarters the increase in Gross Domestic Product (GDP) has been at, or a little above, its long-run average and business surveys point to continued firm growth.
Consumer Price Index (CPI) inflation increased to 2.5% in June and is expected to remain above the 2.0% target for some time. Higher energy prices have led to greater inflationary pressures and, although the outlook for energy prices is uncertain, energy price inflation is expected to moderate in the medium term. However some recovery in profit margins and pay growth is likely to mean that consumer price inflation will move only gradually back to the target.
With inflation likely to remain above the target for some while, the Committee judged that an increase of 0.25 percentage points in the official Bank rate to 4.75% was necessary to bring CPI inflation back to the target in the medium term.
The Committee's latest inflation and output projections will appear in the Inflation Report to be published on Wednesday 9 August. The minutes of the meeting will be published at 9.30am on Wednesday 16 August.
