BoE raises key interest rate
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King raised interest rates in November for the first time in nearly four years.
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LONDON, England (CNN) -- The Bank of England has raised its key interest rate a quarter point to 4.0 percent, as widely expected, in an effort to ease inflation concerns as the economy picks up speed.
The BoE's decision Thursday to increase borrowing costs for the second time in three months comes amid growing evidence that the world's fourth largest economy is continuing to recover from a global slowdown. Meanwhile, the European Central Bank said Thursday it would leave its key rate on hold as the economy of the 12-nation euro zone continues to struggle.
In a statement, the BoE said it was still worried about the ongoing strength of the housing market and consumer and debt levels.
"Although sterling has appreciated, continued growth above trend means that inflationary pressures are likely to pick up gradually over the next couple of years,'' it added.
It also said the global recovery had steadied and Britain's economic growth in the second half of last year was "above trend."
In November, the BoE raised its key lending rate to 3.75 percent from a 48-year low of 3.5 percent. That was the first hike in rates in four years.
BoE Governor Mervyn King said at the time that Britons needed to consider whether they are taking on more debt than they can handle.
"There is a risk that heavily-indebted households will be badly affected by changes in economic circumstances or interest rates,'' King said.
"Everyone needs to think carefully about the amount of debt which they can afford.''
Most analysts had forecast Thursday's rate rise, pointing to strong growth in the economy as well as higher retail sales and a hot property market -- signs that the economy could be overheat and contribute to inflation.
The quarter-point increase is expected to cool borrowing among consumers and add to monthly mortgage payments. The average monthly payment on a £100,000 home loan will rise by about £14.
Rate decision questioned
Some analysts cautioned that the a second rate increase could harm Britain's economic recover
The decision is "very disappointing. This rise is premature and is likely to hit recovery over the head before it gains momentum,'' David Frost, director general of the British Chambers of Commerce, told Reuters.
The move also widens the rate gap between Britain and the euro zone and the United States, whose rates stand at 2.0 percent and 1.00 percent respectively.
On Thursday, the European Central Bank -- which is responsible for monetary policy within the euro zone -- decided to leave its key rate unchanged at 2.0 percent.
That decision was also widely expected as the region's economic recovery has been weaker than that experienced in Britain, with inflation concerns being less of a concern in the euro zone.
The U.S. Federal Reserve's main lending rate currently stands at 1.00 percent.
