Bank of England raises its interest rate in bid to control inflation.

Britain’s central bank was the first major bank to raise interest rates as inflation climbed to the highest level in a decade.,

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London’s Oxford Street, a central shopping area, on Wednesday. Credit…Tolga Akmen/Agence France-Presse — Getty Images

Britain’s central bank surprised markets on Thursday by increasing its main interest rate for the first time in three and a half years to combat a surge in inflation, despite the economic uncertainty posed by the fast-spreading Omicron variant.

Policymakers voted to raise the bank’s interest rate by 15 basis points to 0.25 percent. The rate had been at 0.1 percent since March 2020, when the onset of the pandemic sent financial markets careening and the government first introduced lockdown measures.

The Bank of England was the first major central bank to raise interest rates as inflation climbed to the highest level in a decade and the bank said it would not peak until April. Eight of the nine policymakers voted for a rate increase, compared with just two in November. After the announcement the pound jumped against the U.S. dollar, gaining more than 1 percent.

“There was some value in waiting for further information on the degree to which Omicron was likely to escape the protection of current vaccines and on the initial economic effects of this new wave,” policymakers said, according to the minutes of the central bank’s meeting. “There was, however, also a strong case for tightening monetary policy now” because of the strength on inflationary pressures in the economy.

Britain set a record on Wednesday for the reported number of coronavirus cases — 78,610 — and England’s chief medical official warned more records would be broken. The government has resisted putting major restrictions on businesses and social life, focusing instead on speeding up the rollout of booster vaccines and urging people to work from home. But now, Christmas parties and other get-togethers are being voluntarily canceled in droves, gyms are asking for more government support and people are retreating back into their homes.

For the Bank of England, the virus surge threatened to delay policymakers’ efforts to get interest rates off the ground.

The Bank of England is far from alone in trying to deal with historically high levels of inflation. In the United States, prices are increasing at the fastest pace in nearly 40 years.

On Wednesday, the Federal Reserve said it would cut down its bond-buying program by more than it had previously announced, while policymakers signaled that interest rates could rise three times next year. Inflation in the eurozone is the highest its ever been since the creation of the common currency, though the European Central Bank has been more concerned by medium-term inflation forecasts which are still below its 2 percent target.

In early November, Britain’s central bank caught financial markets off guard by not raising interest rates after policymakers had signaled that high inflation was becoming a concern. At the time, they said they would wait for more information on whether the end of the government-funded furlough program in September led to an increase in unemployment. But they added that a rate increase would be likely be necessary in the “coming months.”

So far the data has shown an increase in payrolls, a continuing decline in the unemployment rate and record levels of job vacancies. The labor market has responded as policymakers hoped, but inflation has sped away from their expectations, increasing the pressure to raise rates.

The annual inflation rate rose to 5.1 percent last month, the highest since September 2011, the Office for National Statistics said on Wednesday. Last month, the central bank forecast that inflation would reach 4.5 percent by November and not peak at 5 percent until April. On Thursday, the bank updated its projections. Inflation would stay at about 5 percent through most of the winter and peak at around 6 percent in April.

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