The Bank of England hiked its key rate for the eleventh consecutive session on Thursday as an unexpected rise in inflation outweighed concerns about the recent banking sector turbulence.

The nine-member Monetary Policy Committee decided to lift the bank rate by 25 basis points to 4.25 percent. This was the highest rate since 2008.

Seven members of the panel voted for a quarter point hike, while Swati Dhingra and Silvana Tenreyro again sought to maintain the status quo.

The bank rate was raised by 415 basis points over the current tightening cycle that began in December 2021.

"Assuming the tentatively encouraging trends we've seen in price setting and wage growth numbers continue, we'd expect a pause in May," ING economists said.

The BoE announcement came after the US Federal Reserve raised its benchmark rate by 25 basis points on Wednesday and signaled that the tightening cycle is nearing an end. The bank is expected to lift the rate just one more time this year.

Last week, the European Central Bank had lifted interest rates by 50 basis points, in par with the February hike. The Swiss National Bank also adopted a similar move today.

Most of the BoE members observed that headline inflation had surprised significantly on the upside and the near-term path of GDP was likely to be somewhat stronger than expected previously, the bank said.

"Renewed and sustained demand for labor could still reinforce the persistence of higher costs in consumer prices, even if second-round effects related to energy price inflation were to diminish," the minutes said.

The MPC vowed to continue to monitor closely indications of persistent inflationary pressures, including the tightness of labor market conditions and the behavior of wage growth and services inflation.

"If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required," the panel said.

The BoE said the economy will avoid a recession for now. The economy is forecast to expand slightly in the second quarter, compared with the 0.4 percent decline anticipated in the February Report. Bank staff said the additional fiscal support announced in the Spring Budget would increase the level of GDP by around 0.3 percent over coming years.

Inflation is still expected to fall significantly in the second quarter, to a lower rate than anticipated in the February report. Wage growth is projected to fall back somewhat more quickly than projected earlier.

In February, inflation unexpectedly rose to 10.4 percent after slowing for three straight months. As inflation moved away from the 2 percent target, BoE Governor Andrew Bailey wrote an open letter to the Chancellor explaining the reason for such an increase and also measures taken in response to higher inflation. In the face of bank failures and the subsequent volatility in the financial markets, the Financial Policy Committee reported the MPC that the UK banking system is well placed to continue supporting the economy. The FPC judged that the UK banking system maintains robust capital and strong liquidity positions.

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