Bank of England Raises Interest Rates to Battle Inflation

The move comes a day after the U.S. Federal Reserve set the stage for a series of rate rises in 2022, a major policy pivot that highlights growing concern over inflation. It also comes despite surging cases of the Omicron variant of coronavirus in the U.K., which the committee said could have unpredictable effects on the British economy.

The decision wasn’t widely expected. Though a rate rise had been telegraphed, many investors and economists judged the BOE would likely hold steady until early next year while the economic effect of Omicron became clearer.

The pound rose 0.75% against the dollar to $1.336. Yields on one-year U.K. gilts jumped 0.13 percentage points to 0.36%, their biggest increase since October, according to FactSet.

Consumer prices in the U.K. rose 5.1% in November compared with a year earlier, the Office for National Statistics said Wednesday, the biggest annual jump since Sept. 2011.

“The decision at this meeting was finely balanced because of the uncertainty around Covid developments,” the majority on the panel concluded, according to the minutes of their policy meeting published Thursday.

“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. There was, however, also a strong case for tightening monetary policy now.”

The rate increase leaves the BOE’s benchmark rate half a percentage point below where it was in early 2020 before the pandemic began.

Corrections & Amplifications
The Bank of England raised interest rates. An earlier version of this article incorrectly said in the headline that the BOE cut rates. (Corrected on Dec. 16)

Write to Jason Douglas at jason.douglas@wsj.com