The Bank of England on Thursday hiked its interest rate by half a point to 3.5 per cent, the highest level in 14 years, in a bid to cool sky-high inflation.

The increase was the BoE's ninth in a row, while the amount matches a hike on Wednesday by the US Federal Reserve. The European Central Bank announces its latest rate decision at 13.15 GMT.

"The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response," the BoE said in a statement following its latest rate call.

The hike was less than in November when it lifted borrowing costs by 0.75 percentage points.

The Fed also slowed the pace of its tightening on Wednesday, as inflation eases on both sides of the Atlantic.

The BoE on Thursday added it expects the UK economy to contract 0.1 per cent in the fourth quarter, better than its previous forecast for a contraction of 0.3 per cent.

The BoE expects the UK economy to contract 0.1% in the fourth quarter, better than its previous forecast for a contraction of 0.3%

The UK government has said the British economy is in a recession that it expects to carry on into next year on fallout from rocketing energy and fuel bills.

UK inflation stands at 10.7 per cent, the highest level for around 40 years, with prices surging on supply constraints caused by Russia's invasion of Ukraine, the lifting of pandemic lockdowns and Brexit fallout, according to economists.

Soaring prices are eroding the value of wages, causing public and private sector workers to go on strike in an attempt to secure higher salaries. 

While boosting savers, rising interest rates are increasing loan costs for individuals and businesses.

"To make matters worse, higher mortgage payments will come on top of all the other soaring costs – from food to fuel," noted Sarah Coles, senior personal finance analyst at stockbroker Hargreaves Lansdown.

Strikes over pay

UK nurses on Thursday staged an unprecedented one-day strike as a "last resort", despite warnings it could put patients at risk.

It follows fresh walkouts by railway staff, while planned stoppages by passport control and postal workers spell Christmas misery for millions of Britons.

The UK consumer prices index eased in November from October's annual inflation rate of 11.1 per cent, official data showed on Wednesday. 

The BoE meanwhile began to raise its rate in December last year, when it had stood at a record-low 0.1 per cent.

Paul Dales, chief UK economist at Capital Economics, said on Thursday that he expected the BoE to keep on hiking up to a peak of 4.5 per cent early next year, as inflation remains at historically-high levels.