The Bank of England continued to plough its own furrow among the leading central banks yesterday, raising its main interest rate for the second time in three months.

The quarter-point rise to 4 per cent was widely expected after recent official data and surveys showed the economy was gathering momentum, with growth picking up to an annual rate of about 3.5 per cent in the second half of last year.

The bank's rate-setting monetary policy committee said the world economic recovery had become "more broadly based".

In the UK, it added, "output growth in the second half of last year was above trend and business surveys point to a further pick-up in the first quarter".

The bank's decision contrasts with the central banks of the other Group of Seven large economies. The European Central Bank maintained its 2 per cent interest rate, saying "the current stance of monetary policy remains appropriate".

The US Federal Reserve said last week that it "can be patient" about raising rates. The Bank of Japan has signalled it is sticking to its zero interest rate policy until deflation ends. The Bank of Canada last month cut its main interest rate by a quarter-point.

UK inflation was just 1.3 per cent in December, well below the bank's target of 2 per cent. But the monetary policy committee expects it to rise over the two-year time frame it considers when setting rates.

With unemployment at 5 per cent and falling slightly, the bank believes there is very little spare capacity left in the economy. - (Financial Times Service)